MercoPress. South Atlantic News Agency

IMF cuts Latam growth forecast to 3.2% and 2.9% in 2013; Brazil 1.5% and 4%

Latam is highly vulnerable to Chinese demand for commodities

The IMF cut its growth forecasts on Monday for Latin America and its largest economy Brazil, against a backdrop of deteriorating global growth and contagion risks if the Euro zone crisis deepens and China's growth slows more than expected.

The IMF said overall growth in Latin America and the Caribbean would moderate to 3.2% this year, from 3.4% forecasted in July. It still sees a pick-up in 2013, but trimmed its forecast to a 3.9% expansion next year, from 4.2% seen in July.

Growth expectations for both Brazil and Mexico - the region's two biggest economies - were also trimmed back. Brazil is expected to expand 1.5% compared to the July forecast of 2.5%.

The IMF said central banks might have to cut interest rates if the global downturn intensified, although they still had to be alert to high inflation.

“Policymakers in the region must be alert to spillovers from weaker prospects in advanced economies and major emerging markets outside the region, volatile capital flows, and emerging domestic financial risks,” the IMF said in its latest World Economic Outlook.

“Monetary policy should be the first line of defense if global growth slows more than expected, especially in economies with established and tested inflation-targeting frameworks.”

The United Nations' regional economic body has also cut its growth forecasts, along with some private sector economists, as commodity exports suffer due to weaker growth in China, one of Latin America's main trading partners.

An assessment of spillover risks showed Latin America would be one of the regions to be hardest-hit from a sharper-than-expected slowdown in China, the IMF said. The region could also suffer more than others if the United States fails to avoid the 'fiscal cliff', a tightening in fiscal policy in 2013.

Although near-term growth risks were to the downside, recent policy easing -in countries including Brazil and Colombia- should support a re-acceleration later in the year.
The IMF said it expected domestic demand to lead the way in Brazil, where growth was seen picking up to 4% in 2013, after an expected 1.5% expansion this year. In July, the IMF had seen 2.5% growth in 2012 and 4.6% in 2013.

Mexico's outlook was trimmed slightly to 3.8% in 2012 and 3.5% in 2013, both down 0.1 percentage points from July. Peru was expected to grow the fastest, at 6% this year and 5.8% in 2013, followed by Venezuela on 5.7% in 2012 but with a sharp slowing to 3.3% in 2013.

Chile and Colombia were both forecast to grow 4.4% in 2013 after expected 5% growth in Chile this year and predicted growth in Colombia of 4.3%.

The IMF warned that Venezuela and Argentina were particularly at risk of upside pressure on inflation, although this remained above the mid-point of the target range in many countries.