Latin America’s economy is likely to go into recession this year for the first time since the end of the global financial crisis as China’s slowdown lessens demand for the region’s commodities, threatening to undo recent progress in reducing poverty, the IMF said on Wednesday.
The Washington-based lender, in a report released at its annual meeting in Peru, said the rate of economic growth in Latin America and the Caribbean is set to decline for the fifth consecutive year before rebounding next year.
Pulled down by a deep recession in Brazil and Venezuela, two of South America’s largest economies, and by a smaller contraction in oil-dependent Ecuador, the economies of Latin America and the Caribbean are expected to shrink 0.3 percent this year.
Venezuela’s economy is predicted to contract 10 percent as it copes with widespread shortages and the world’s highest inflation, around 200 percent, the IMF said.
Distortive policies, such as heavy foreign exchange controls and unsustainable printing of money to fund government spending, are fueling double-digit inflation and depressing economic activity in Argentina, the fund said. The IMF forecasts South America’s second-largest economy to grow just 0.4 percent this year and contract 0.7 percent next year.
Brazil is projected to decline 3 percent, depressed by a corruption scandal that has paralyzed reforms needed to curtail years of runaway spending and tame inflation running at nearly 10 percent.
However, it is not all doom and gloom. A stronger US economy and lower commodity prices should help manufacturers in Mexico, Central America and the oil-importing countries of the Caribbean. Dollarized Panama is expected to grow 6 percent as a multibillion-dollar expansion of the Panama Canal is completed.
However, even the region’s best-managed economies in recent years, such as Colombia and Chile, need to brace for a protracted slump in commodity prices and an expected interest rate rise in the US, which is likely to prompt an even faster exodus of capital from the region.
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