April 29, 2015 – IMF Survey From International Monetary Fund

Growth in Latin America and Caribbean to drop below 1 percent in 2015, modest recovery expected in 2016
South America’s growth weighed down by lower commodity prices; better outlook for Mexico, Central America, Caribbean
Region needs to tackle long-standing structural problems to raise investment, productivity
Growth in Latin America and the Caribbean is expected to decline for a fifth consecutive year—dipping below 1 percent in 2015—although there are clear differences along North-South lines, the IMF said in its latest regional forecast.
The IMF’s Regional Economic Outlook for the Western Hemisphere, released April 29 in Santiago, Chile, projects growth in Latin America and the Caribbean at 0.9 percent in 2015, down from 1.3 percent in 2014.
Near-term prospects remain fairly dim for South America, with output contractions projected in three of the largest economies for 2015—Argentina, Brazil, and Venezuela—while only Chile and Peru would see a pick-up in growth.
In contrast, growth is projected to be steady in Central America and the Caribbean, and strengthen in Mexico, thanks to lower oil bills for importers and robust economic recovery in the United States.
For 2016, growth in the region is expected to make a modest recovery to 2 percent.
Outlook still uncertain
The Regional Economic Outlook draws attention to the downside risks that could further complicate the outlook for Latin America.
Further possible weakness in commodity prices—perhaps related to a sharper downturn in China—would increase pressures on South America’s net commodity exporters. At the same time, financial risks have increased, following a long period of strong capital inflows and credit growth regionally and low interest rates globally.
Faster-than-expected U.S. growth would benefit its closest trading partners in the region, notably in Central America and Mexico, but could lead to faster normalization of U.S. monetary policy than currently anticipated.
The continued weakness in regional economic activity also heightens the risk of domestic policy missteps, especially attempts to stave off a structural slowdown with excessive policy stimulus.
Divergent trends
Growth dynamics among the region’s financially integrated economies—Brazil, Chile, Colombia, Mexico, Peru, and Uruguay—are expected to diverge over the period ahead, reflecting differentiated exposures to global commodity markets and other country-specific factors.
Brazil is experiencing the most serious economic downturn in more than two decades, with output projected to fall by 1 percent in 2015. Mexico, the second largest economy in the region, faces a comparatively favorable outlook. Growth is projected to expand by 3 percent this year.
Among the other financially integrated economies, Chile, Colombia, and Peru are all facing headwinds from lower commodity export prices and the related cuts to corporate investment. However, strong macroeconomic fundamentals provide an important buffer.
Economic conditions in some of the other (less financially integrated) commodity exporters of South America are particularly challenging. Venezuela slid into recession in early 2014 and is expected to severely contract in 2015. In Argentina, exchange rate pressures have eased recently, but output is still projected to decline modestly in 2015, extending last year’s slowdown.
In contrast, Central America’s economies are expected to benefit from the current external environment, particularly from the U.S. recovery. Growth in 2015 is projected at a solid 4¼ percent, close to last year’s number.
Economic recovery is also expected to continue in the Caribbean, although external, fiscal, and financial vulnerabilities remain high in several economies. In the tourism-dependent Caribbean, growth is projected to improve to 2 percent, in 2015.
Policy options
Despite the pronounced slowdown over the past several years, economic slack remains limited, while medium-term growth expectations have continued to decline, the IMF said. In addition, fiscal positions have weakened in most countries, cautioning against further fiscal expansion to boost growth. Flexible exchange rates can play a critical role in facilitating adjustment to more difficult external conditions. In particular, weaker currencies help to redirect demand toward domestically produced output, thereby reducing external deficits.
The IMF called on policymakers in the region to ensure sound public finances, especially since downside risks to growth remain prominent. Financial sector vulnerabilities will also need to be monitored carefully given that weaker earnings, tighter funding conditions, and a stronger U.S. dollar are testing borrowers’ resilience.
A key priority for governments is to tackle long-standing structural problems to raise investment, productivity, and potential growth. Improvements in business environments, infrastructure, and education will help to foster more diversified, resilient, and prosperous economies.
IMAGE: Shop in Salvador, Brazil, where the IMF is projecting output to fall by 1 percent in 2015 (photo: Anna Watson/Newscom)
SOURCE: http://www.imf.org/external/pubs/ft/survey/so/2015/car042915a.htm