IMF sees deeper LatAm recession

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Tuesday, October 4, 2016

Economic activity slowed in Latin America, as several countries are mired in recession, with recovery expected to take hold in 2017, the IMF said on Tuesday.

In its October 2016 World Economic Outlook, the multilateral says the region will contract 0.6% this year. The contraction is two-tenths deeper than its previous projection three months ago. But the region will bounce back and grow 1.6% in 2017, it added.

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Leading the fall this year is Venezuela, whose economy is expected to shrink 10% and 4.5% in 2017. It is coming off a 6.2% contraction last year.

Brazil will contract 3.3% in 2016, although it is expected to grow at 0.5% in 2017 on what is expected to be more political certainty, with the impeachment of former president Dilma Rousseff having been resolved.

Ecuador will contract 2.3% this year and 2.7% in 2017.

Argentina, which is transitioning into a business friendly economy, will fare worse than expected, contracting 1.8% this year, compared with a 1.6% call in July. Next year, the administration of President Mauricio Macri can look forward to 2.7% GDP growth.

Colombia's economy is expected to slow to 2.2% growth this year from 3.1% in 2015. That's a 0.3% downward revision by the IMF. Likewise, Chile's economy will grow 1.7%, down from 2.3% last year. Peru will expand 3.7% in 2016 and over 4% next year, driven by the mining sector and public sector investments.

"Taken as a whole, the world economy has moved sideways," said IMF chief economist and economic counsellor, Maurice Obstfeld (pictured).

Global growth is seen at 3.1% this year and 3.4% in 2017.

The US economy will grow 1.6% in the current year, down from the 2.2% seen in July. It will likely expand 2.2% next year as "the drag from lower energy prices and dollar strength fades," the IMF said. US Federal Reserve rate hikes "should be gradual and tied to clear signs that wages and prices are firming durably," it added.

The world's second largest economy, China, is forecast to expand 6.6% this year and 6.2% in 2017, down from 6.9% in 2015.