WASHINGTON: Depressed commodity prices and the challenge of tougher capital market conditions will keep economic growth across Latin America and the Caribbean in slow gear, the International Monetary Fund said Tuesday.
Largely on the back of the slowdown in the region's economic power Brazil, the IMF cut its forecast for regional growth this year to 2.5 percent, picking up to just 3.0 in 2015.
That put the region at the low end of growth for emerging and developing countries, the IMF said. In January it had predicted growth at 2.9 percent in 2014 and 3.3 percent in 2015.
But the dependence of the region on commodity exports -- mining output, oil, and food crops -- will see overall growth slower this year than last year's 2.7 percent, even as much of the rest of the world picks up speed.
Moreover, the sharp slowdown in foreign investment will challenge policy makers to find domestic sources of growth while not over-inflating fiscal deficits.
"Policy makers need to focus on strengthening fiscal positions, addressing potential financial fragilities, and pressing ahead with growth-enhancing structural reforms to ease supply-side constraints." the IMF said in its annual World Economic Outlook report.
Brazil was projected to grow just 1.8 percent this year, down from 2.3 percent last year, amid a sharp decline in investment.
The country has been hit particularly hard by the US Federal Reserve's cuts to its stimulus program. That caused interest rates to jump, stirring a sharp outflow of capital from Brazil and sending the country's currency, the real, tumbling, further highlighting weaknesses in the government's fiscal position.
Weak investment growth in Brazil reflects a "loss of competitiveness and low business confidence," the Fund said.
But the region's number-two economy, Mexico, is bucking the trend, helped by key reforms and efforts to stir investment and consumption after last year's near-stall to a 1.1 percent expansion.
The Mexican economy is forecast to grow 3.0 percent this year, picking up to 3.5 percent in 2015.
"Mexico's ongoing economic reforms, especially in the energy and telecommunications sectors, herald higher potential growth for the medium term," the IMF said.
Colombia and Peru are able to sustain a peppy rate of growth, but Argentina and Venezuela will slow markedly this year, the IMF said, and face highly uncertain conditions.
In both, "persistently loose macroeconomic policies have generated high inflation and a drain on official foreign-exchange reserves."
The heavily agriculture- and tourism-dependent Caribbean countries will also continue to suffer, the Fund said, held back by low competitiveness and high levels of debt.
Latin America's big commodities exporters, including Brazil, Argentina and Chile, will be challenged to adjust to an extended period of lower export prices, the IMF says. It does not expect prices to gain even if the economy of China, the most important buyer of primary products, picks up .
"The broader commodity market picture is one in which supply shifts for many commodities are expected to more than offset the price effects of the projected strengthening in global activity," the Fund said.
In addition, it said, China is likely to move to a higher grade of commodity consumption as its economy shifts from an investment-driven to a more consumption-driven growth model.
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