IMF drastically cuts Latin America’s growth projection in 2019

The adverse weather has affected some of the economic activities of Latin America. This forced the IMF to cut the region's growth expectation for 2019, moving from an initial estimate of 1.4% to 0.6%

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Reuters | Marion Giraldo

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The International Monetary Fund (IMF) on Tuesday applied a sharp cut to estimates of economic growth in Latin America, given a more pronounced slowdown in Brazil and Mexico, exacerbated by global trade disputes and a deterioration in the confidence of investors and analysts.

Leer en español: FMI aplica drástico recorte a proyección de crecimiento de América Latina en 2019

A sharp decline in economic growth estimates for 2019 in Latin America is largely due to "temporary factors," including adverse weather, while policy uncertainty in the largest economies also weighed.

Alejandro Werner, director of the IMF's Western Hemisphere department, wrote that production was affected by weather that impacted mining activity in Chile and agricultural production in Paraguay, while mining activity in Brazil slowed after a dam disaster.

In its World Economic Outlook report, the IMF said it now expects the region as a whole to expand at a rate of 0.6% this year, a cut of 0.8 percentage points in relation to its last April calculation. By 2020, the forecast was also adjusted slightly downwards, to 2.3%.

"In Latin America, activity slowed significantly at the beginning of the year in several economies, mainly due to idiosyncratic factors," said the agency, which called on governments to regulate fiscal spending and indebtedness.

Tariff disputes and trade agreements, together with an increase in debt and the inability to carry out major macroeconomic reforms have damaged the prospects of Brazil and Mexico, the main Latin American economies, the IMF said.

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In Brazil, where morale is evaporating after credit rating reductions and doubts about the feasibility of the pension reform, the economy would expand 0.8% this year, a decrease of 1.3 percentage points compared to the last April estimate. By 2020, the activity would improve to 2.4%.

Meanwhile, the Fund also pointed to a cooling of GDP in Mexico, which currently hopes to finalize a new trade agreement with the United States and Canada. The second-largest regional economy would grow 0.9% this year and rise to 1.9% next year, with a 0.7 percentage point reduction in the 2019 estimate.

Latin America has experienced an economic slowdown in recent years and in 2018 it grew just 1%, according to the IMF, weighed down by geopolitical factors, a decline in investment, more moderate data in China, and lately, by an intricate trade landscape.

In its report on Tuesday, the Fund reduced its global growth projections for this year and next year by 0.1 percentage points, to 3.2% and 3.5 %, respectively, with risks in forecasts that were mostly downward.

Threats include "escalating trade and technology tensions" that could generate a prolonged period of risk aversion, leaving the vulnerabilities of emerging economies even more exposed.

The IMF also stressed that the Argentine economy contracted in the first quarter, but at a slower pace than in 2018, so its forecast slightly decreased this year in the South American country.

The report also drew attention to the humanitarian crisis and the "devastating effect" of the Venezuelan crisis, where the economy would contract around 35% this year.

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