LatAm could see lower growth as commodity prices ease - IMF
The more subdued outlook for commodity prices could result in significantly lower growth in Latin American resource-rich economies, according to the latest IMFregional economic outlook.
Commodity prices have been falling since 2012 on rising supply and lower demand from key consumers such as China, which is by far the largest consumer of industrial metals. However, prices are still at relatively high levels in a historical context.
"It is the lower projected growth of commodity prices, rather than their still-high levels per se, that will have a dominant effect on output growth in the next few years," the IMF said.
To avoid the boom-bust dynamics associated with commodity cycles, countries must strive to weaken the link between commodity prices and economic activity, according to the outlook.
A formal fiscal framework, including a stabilization fund, would help to strike the right balance between "building buffers and frontloading capital spending to raise potential growth."
Using demand-side stimulus to keep growth at recent high rates could lead to macroeconomic imbalances, according to the outlook. The IMF said policies should instead focus on structural reforms to raise productivity.
GROWTH OUTLOOK
Latin America is expected to grow by 2.5% in 2014, down from 2.75% last year and 3% in 2015, according to the IMF.
Mexico will rebound to 3% growth this year on a stronger US recovery, while Brazil is expected to fall to 1.8% due to weak business confidence. Peru has the strongest projected growth in South America at 5.5%, followed by Bolivia (5.1%) and Paraguay (4.8%). Colombian growth will rise to 4.5%, while Chile's will fall to 3.6%, according to the IMF. "Activity in Chile is projected to moderate further, as private investment growth has slowed, especially in mining," the IMF said.
Argentina is expected to slump to 0.5% growth, while Venezuela will contract by 0.5%.
Economic growth in Central America is projected at about 3.5% in 2014, similar to last year.
Earlier in April, the IMF cut South America's 2014 growth forecast to 2.3% from a previous estimate of 3.1%. The region has grown an average 5.1% in the last decade.
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