MercoPress. South Atlantic News Agency

IMF forecasts 4.4% growth for 2008 in “resilient” Latam

Economic growth in Latinamerica will slow this year and next because of a “mild recession” in the US and turmoil in global financial markets, according to the International Monetary Fund World Outlook report released Wednesday

Regional growth will slow to 4.4% this year and 3.6% in 2009, from 5.6% in 2007, said IMF. Robust domestic demand and commodity exports to other emerging markets will help lessen the impact of the US slowdown. "Resilient economies will be dampened, but not overwhelmed, by the slowdown in the United States and other advanced economies and by dislocations in international financial markets", according to the report. This would be a very different outcome from past periods of external stress. Going back to 1970, Latinamerica has invariably been hit hard by slowdowns in the United States, its largest trading partner. Many of these episodes were exacerbated by a sharp deterioration of access to external financing in the context of rising risk aversion. Latinamerica has become less vulnerable to increasing risk aversion and financial disruptions. There are also reasons related to the character of the current global business cycle. First, the easing of monetary conditions by the Federal Reserve and the decline in long-term, risk-free interest rates has helped to offset the impact of some widening in risk spreads. Second, sustained strong growth in other emerging economies has kept commodity prices at high levels despite the slowdown in the advanced economies. Argentina and Peru will lead the region with an expansion of 7% each this year, down from 8.7% and 9% in 2007. Brazil is expected to grow 4.8%, down from 5.4% in 2007. Ecuador is the only country in the hemisphere whose growth this year will surpass 2007 levels, the report said. Uruguay is forecasted to grow 6%; Venezuela 5.8%; Colombia 4.6% and Chile 4.5%. Mexico highly dependent on the US economy is estimated to grow 2%, while Central American countries will average 4.7%. Inflation may accelerate this year to 6.6% across the region, before subsiding in 2009 to 6.1%. Inflation in 2007 was 5.4%. Consumer prices may climb 25.7% in Venezuela and 9.2% in Argentina. Rising prices, especially for food and energy, will make it difficult for central banks to pare interest rates, the IMF said. The scope for easing could be hampered by the need to bring inflation back down to within target ranges in a number of countries,'' the report said. IMF said private capital inflows will probably moderate from the very high rates observed in 2007. Still, higher fiscal savings that have brought down external debt levels and built international reserves have made the region less vulnerable to a global credit crunch, the IMF said. "The region's external position should be sufficiently robust to avoid the more severe disruptions that occurred in the past". If global growth slows to 3% or less in 2008, growth in Latin America would be lowered a further 1-to-2 percentage points, depending on the degree of the spillover, the report said. However, since Latinamerica has diversified exports with China and India playing significant roles in demanding commodities, the impact of the US recession should be limited. The two Asian giants are forecasted to grow 9.3% and 7.9% respectively. Finally IMF urged Latin American governments to pursue fiscal reforms that would make their economies more competitive and expand tax collection. "Even though economic activity remains strong, macroeconomic policy makers should remain cautious".