IMF cuts growth forecasts for Latin America

October 9th, 2013 (AFP) – The International Monetary Fund on Tuesday cut its economic growth forecast for Latin America and the Caribbean, blaming, at least in part, poor infrastructure and lower commodity prices.

In its latest World Economic Outlook report, the IMF noted that emerging markets generally were facing a dampening of growth amid “less supportive external conditions and domestic supplyside constraints.”

The global lender lowered its gross domestic product growth forecast for the region to 2.7 percent in 2013 and to 3.1 percent in 2014. Both numbers were revised down 0.3 percentage point from the July WEO update.

Overall, the IMF stressed that “policies should aim at improving the quality and sustainability of growth and reducing domestic financial volatility.”

It added that, although downside risks remained, adjusting exchange rates to take into account changes in fundamentals could offset tougher financial conditions with continued gradual fiscal consolidation an additional positive element.

“With weaker growth prospects and heightened capital flow volatility, safeguarding financial stability is a key policy priority,” the report said, blaming “infrastructure bottlenecks” for slowing down the region.

Turning to the region’s largest economy, Brazil, the IMF said that “in Brazil, growth picked up on the back of stronger investment, including inventories.”

The IMF projected Brazil’s economy would expand 2.5 percent in 2013, unchanged from its July estimate growth, and cut its 2014 forecast by 0.7 point to 2.5 percent.

It warned Brazil against “maintaining unsustainably high growth rates through fiscal policy stimulus (which) would weaken public finances and widen current account deficits.”

Brazil posted a sizzling 7.5 percent GDP growth three years ago, but it has since been struggling, expanding just 0.9 percent last year amid fears of rises in long-term US interest rates while a marked depreciation of the Brazilian real has fueled inflationary fears.

The currency fall could “improve external competitiveness” to help offset some of the impact of price rises, the IMF observed, adding that “monetary tightening remains appropriate” for the region as a whole.

For the LatAm region, the IMF said it saw inflationary pressures as “broadly contained” while regarding growth as moderating “to more sustainable levels” with strong wage growth and relatively low jobless rates aiding consumption while credit growth was set to remain “relatively strong.”

On debt, it said that “external current account deficits are projected to widen further in 2013 as commodity prices have softened and domestic demand continues to outpace output.”

The IMF said it saw growth in commodity-exporting countries remaining solid, except for major oil producer Venezuela, “where energy shortages and exchange controls are curtailing economic activity.”

Still, the Fund warned about the region’s “strong dependence on commodities” and the risk of a sharp drop in commodities prices. It suggested slower growth in major economies outside of the region, especially from China, could reduce demand, slicing regional growth by about a half percentage point.

The IMF also criticised Argentina, where although a strong harvest had boosted the economy, “activity continues to be constrained by foreign exchange and other administrative controls.”

Overall, the IMF said that global growth is in “low gear”.