IMF Regional Economic Outlook in Latin America and Caribbean 'Weak' or 'Subdued' for Many Countries
The International Monetary Fund (IMF) released its Regional Economic Outlook report on the Western Hemisphere, and the projections for Latin America are "low."
According to the "Regional Economic Outlook: Western Hemisphere: Rising Challenges," economic activity strengthened worldwide during the second half of 2013 and is projected to increase further in 2014 due to improved recovery among the advanced economies. In emerging market economies, the growth momentum is expected to "remain subdued" due to tighter financial conditions and "homemade" weaknesses for some specific cases.
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Latin America and the Caribbean's economic activity is forecast to "stay in low gear" during 2014. For some Latin American countries, the economic growth will differ. The IMF report stated Mexico will encounter economic growth due to the stronger recovery of the United States and "normalization" of domestic factors.
Colombia and Peru are among the few Latin American countries to maintain considerate economic growth while Chile and Uruguay's growth due to weakened investments and low external demand from regional trading powers.
For other Latin American countries, it appears the mixed to negative news continues. Brazil's economic activity is projected to stay "subdued" over private investments' sentiments on weak business confidence. Argentina and Venezuela are said to face "difficult" economic growth outlooks because of vital macroeconomic imbalances and "distortionary" policies.
"For the region at large, the outlook remains clouded by downside risks, including renewed bouts of financial market volatility and a sharper-than-expected decline in commodity prices," the IMF reported. "Weak fiscal positions represent an important domestic vulnerability in many economies, especially in Central America and the Caribbean."
Latin America and the Caribbean's economic activity did not grow in 2013 compared to 2012 because of weaker domestic demand, lower prices in commodity, tightening financial conditions, and in some cases, supply constraints.
Although Mexico is projected to see some growth courtesy of the U.S., a "sharp slowdown" did occur in Mexico due to lower public spending and construction activity. The U.S., despite projections to help Mexico, apparently also caused their slowdown due to weak demand.
For the region, inflation was contained, which was considered to reflect on the low food prices. Financial markets were also impacted during the past year as investors reassessed risks and prospects from the emerging markets as the U.S. Federal Reserve made initial steps toward reducing its asset purchases, or tapering. Investment growths will continue to be slow as a result of large projects in mining reaching completion. Rising funding costs and weak business confidence have also been routed to slowdown investment growth.
It isn't all negative for the Latin American region as growth is expected in 2014 by 2.5 percent.
"The outlook for the financially integrated economies presents two main policy challenges. First, investor sentiment toward emerging markets remains fragile," the report later added, "Second, with the secular commodity price boom petering out and activity increasingly constrained by supply-side bottlenecks, economic growth is likely to settle below the high rates of the past decade, even in the absence of major external shocks."
The IMF added that addressing the aforementioned challenges require "careful recalibration of macroeconomic policies" as well as structural reforms to eliminate barriers for economic growth.
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