The International Monetary Fund (IMF) has discovered that economic activity across Central America and the Dominican Republic has weakened.

Citing the slowdown in the United States' demand and the onset of the coffee roya disease, exports slowed in Central America.

In Panama, which the IMF categorized as outside of Central America, the economic growth also slowed due to a reduction of the canal's traffic and re-export activities. The slowdown in Panama was also attributed to Venezuela's controls on foreign exchange payments.

The volatility in the financial markets has also affected economics in the Dominican Republic as well as Central America and Panama.

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Central America, Dominican Republic, and Panama are expected to see an economic growth of 3.25 percent during 2014. Exports demands from the U.S. are expected to contribute to the positive figures, but the IMF noted an offset may occur due to rising external financial costs and "idiosyncratic factors, such as the need for fiscal consolidation and the impact of the coffee roya disease." The IMF's report consistently emphasized that any estimated growth for Central America, Dominican Republic, and Panama will be due to exports into the U.S.

Despite the projected growth, the IMF stated negative investor sentiments toward the emerging markets led to reliance on external funding.

"Reduced financing from Venezuela under the PetroCaribe program could also weigh on growth in some countries- especially the Dominican Republic and Nicaragua," the IMF reported in its "Regional Economic Outlook: Western Hemisphere: Rising Challenges" report.

A possible concern for many investors may be the public debt among some of the Latin American countries. The IMF specifically noted Costa, Dominican Republic, El Salvador, and Honduras as having an increased public debt since 2008.

According to the IMF, a priority for the region is to "raise productivity" despite constraints by weak business environments, poor infrastructure, and security problems. Priorities, per the IMF, should also include an upgrade to the quality of the labor force through improved education and health care. The government should also improve its revenue-generating capacity in order to better resources and productive public investments.

As Latin Post reported, the IMF's economic activity projections for overall Latin America and the Caribbean is "low. " In Latin America, which is known for emerging market economies, the growth momentum is expected to "remain subdued" due to tighter financial conditions and "homemade" weaknesses for some specific cases.

The IMF report stated Mexico will encounter economic growth due to the stronger recovery of the U.S. and "normalization" of domestic factors. Fellow Latin American countries such as Brazil, Chile, and Uruguay, to name a few, are projected to have a weakened economy or maintain "subdued" activity.

"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."

Despite the "subdued" economic activity, the IMF estimated a 2.5 percent growth to occur during 2014 for the region.

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For the latest updates, follow Latin Post's Michael Oleaga on Twitter: @EditorMikeO or contact via email: m.oleaga@latinpost.com.

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