IMF Survey : Growth in Latin America and the Caribbean Slows Further

IMF News, October 10, 2014

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Economic growth in Latin America and the Caribbean has slowed more than anticipated, as weak growth in South America has outweighed an incipient recovery in Mexico.
The IMF’s Regional Economic Outlook Update for the Western Hemisphere was released October 10 in Washington, D.C.

GDP growth in Latin America and the Caribbean is projected to expand by 1.3 percent in 2014, the second-lowest growth rate in 12 years and more than one percentage point below the rate projected in April 2014.
Growth for 2015 is expected to recover to 2.2 percent.
Economic activity in the financially integrated economies (Brazil, Chile, Colombia, Mexico, Peru, and Uruguay) is projected at:
- 2.7 percent for 2014
- 3.5 percent for 2015
Bolivia, Ecuador, and Paraguay are expected to maintain fairly strong growth of 4–5 percent.
Central America: growth is projected to remain steady at around 3 percent in 2014, with 2015 expected to bring only slightly higher growth.
Caribbean: tourism-dependent economies are expected to expand by 1.1 percent in 2014 and 1.7 percent in 2015.
Argentina and Venezuela are projected to be in recession both in 2014 and 2015.

External factors: weakening of key commodity prices has created a sense of leaner times and caused the private sector to curb spending.
Domestic factors: domestic policy uncertainties have further depressed confidence in several countries.
Country-specific examples: Brazil’s economy suffered a further sharp slowdown, entering a “technical recession” in early 2014; economic conditions also dimmed markedly in Chile and Peru, where investment and durable consumption led the slowdown; Mexico’s economy has recently gathered pace following several quarters of underperformance through early 2014.

A sharper slowdown in China remains a key risk for commodity exporters in Latin America and the Caribbean (comment by Alejandro Werner, Director of the IMF’s Western Hemisphere Department).
The outlook could be undermined by renewed financial volatility, including a faster-than-expected rise in U.S. interest rates.
On the upside, Mexico, Central America, and parts of the Caribbean would benefit from a stronger U.S. recovery.

Structural reforms are critically needed to increase productivity and potential growth; typical priorities include:
- Improve the business environment.
- Enhance the performance of education systems.
- Shift scarce budget resources toward critical infrastructure needs.
Monetary policy and flexible exchange rates are recommended as the most suitable tools to deal with cyclical fluctuations.
The report cautions against using fiscal stimulus in countries where economic slack is limited or public finances are weak.

IMF Survey : Growth in Latin America and the Caribbean Slows Further — IMF Survey, October 10, 2014.