MercoPress. South Atlantic News Agency

IMF sees Brazil and Argentina helping to pull Latin American out of recession

Policy makers have increased the pace of interest rate cuts for the second time this year amid record-high unemployment and slowing inflation.

The International Monetary Fund offered an encouraging outlook for Brazil´s growth in 2018 since the intense political uncertainty is yielding, monetary policy easing and progress on the government’s economic reform agenda should help the country pull out of its worst recession in a century.

 Brazil will grow 1.7% in 2018, compared with a January forecast of 1.5%, IMF said in its World Economic Outlook released on Tuesday. This year the estimate is 0.2%.

President Michel Temer’s administration is working to pull Latin America’s largest economy from its worst recession in a century. Policy makers have increased the pace of interest rate cuts for the second time this year amid record-high unemployment and slowing inflation.

The administration has won investor praise for efforts to shore up Brazil’s finances and boost private sector activity and while this year’s growth estimates remain tepid, confidence has risen as the budget deficit has dropped, the currency has gained and inflation has plunged.

“Brazil’s macroeconomic prospects hinge on the implementation of ambitious structural economic and fiscal reforms,” the IMF said in the report.

Brazil’s central bank is expected to lower the key rate to 8.5% from the current 11.25% by year-end and hold it at that level throughout 2018. That would be the biggest easing cycle since policy makers cut the Selic to 11.25% from 19.75% in the two years through September 2007. Still, the IMF forecasts economic growth of just 0.2% in 2017 after more than two years of recession.

However many hurdles lie ahead for Temer and his reforms' program, since his government is again weakening because of the ongoing Petrobras and Odebrecht scandal which involves names of his cabinet and affects the whole political system credibility. Anyway the fragility will remain until the country goes to the polls in October 2018 to elect a new president and renew much of congress.

Nevertheless IMF points out that the positive upturn of the region, even modest, can be attributed to stabilization of the Brazilian situation and the recovery of Argentina.

The WEO forecasts that Argentina will rebound from a 2.2% contraction in 2016 to 2,2% growth this year and 2.3% in 2018, based on increased domestic consumption and government investment reflecting the gradual sprouts of increased government spending in infrastructure and exports.