A painful trade-off between growth and inflation was one of the stark realities faced by regional countries as growth created its own problems, independent ratings data indicated.
In Brazil, economic growth has pushed up inflation, made the national currency real less competitive in global export markets, hurt living standards and put a heavy strain on the country's infrastructure.
Brazil and Argentina, major commodity exporters, were hit by bottlenecks in port systems handling increased exports.
Fitch ratings agency said sovereign ratings in most Latin American countries improved during the first half of the year but major challenges remained. Jamaica was a notable exception after facing a sovereign downgrade driven more by a domestic debt adjustment than actual economic underperformance in exports or industrial activity.
Overall sovereign rating actions in Latin America had a positive bias in the January-June period and included upgrades of Mexico and Uruguay and Colombia's revised rating to positive from stable.
Fitch downgraded Jamaica's foreign currency and local currency issuer default ratings to restricted default. The move from IDRS to RD resulted from a domestic debt exchange that "adversely impacted the original contractual terms of domestic bondholders," Fitch said.
Almost the entire Caribbean region is facing other economic uncertainties over fuel prices and the impact of Middle East crisis on global oil trade.
Fitch called the rating outlook for the majority of sovereigns in the region as stable, saying positive and negative rating pressures are "evenly balanced."
Colombia and Ecuador have a positive outlook, while El Salvador, Venezuela and Argentina's local currency IDRs have a negative outlook, the ratings data showed.
"Slow global recovery, slower domestic demand growth, softer commodity prices and country-specific factors are leading to a slowdown in most of the regional economies in 2013," Fitch Latin America sovereign group head Shelly Shetty said.
Improvements in fiscal and external solvency and liquidity indicators may be hindered and weigh on the upward potential of sovereign ratings, Shetty said.
Growth in Latin America's real gross domestic product will reach 2.9 percent this year, Fitch said, revising an earlier forecast of 3.3 percent. However, excluding Brazil, Latin America's real GDP will slow to 3.2 percent this year from 4.1 percent in 2012.
Fitch expects the multiple speed growth in the region to continue. The five highest growth countries are Bolivia, Chile, Peru, Panama and Paraguay.
Fitch isn't the first agency to predict Paraguay is set to become the the fastest growing economy in the region after a "mild contraction" in 2012. The small landlocked country has a running quarrel with bigger neighbors over Mercosur moves to isolate Paraguay over its controversial political transition after the ouster of former President Fernando Lugo last year.
The smaller economies of Ecuador, Colombia and Suriname are set to grow above 4 percent this year, while Brazil and Mexico are likely to drag at 2.5 percent and 3 percent respectively.
Along with Jamaica, El Salvador and and Venezuela will underperform with growth below 2 percent, Fitch predicted.
With the exception of Brazil and Uruguay, most inflation-targeting countries have well-contained inflation, which should give them space to cut rates should economic conditions deteriorate. However, the recent volatility and depreciating pressure on regional currencies may hinder the monetary flexibility to some extent. Colombia and Mexico have already cut interest rates.
Brazil faces a difficult growth-inflation tradeoff as its central bank recently accelerated the pace of interest rate hikes to respond to inflation despite a gradual economic recovery. Argentina and Venezuela will continue to have the highest inflation rates in the region.
Fiscal deterioration is expected in several countries as revenue growth slows on the back of the economic slowdown and lower commodity prices.
"Structural weaknesses continue to weigh down creditworthiness in Latin America," Fitch says. "While the reform process has gained some momentum in Mexico, progress in the region overall remains spotty and is likely to be further slowed by the heavy electoral calendar in 2014," said Shetty.