IMF slashes LatAm growth forecasts

Latin America and the Caribbean (LAC) will grow 1.3% this year and 2.2% in 2015, according to the IMF, which lowered the region's growth forecast for the second time since July.

The downgrade is due to external factors like weaker-than-expected exports and deteriorating terms of trade, as well as country-specific factors, said the IMF.

The lackluster 2014 LAC forecast represents a major slowdown from the regional growth rates of 2.9% in 2012 and 2.7% last year.

The forecast is lower than the growth projection for emerging markets and developing economies (4.4%), the global economy (3.3%) and advanced economies (1.8%).

SLASHING BRAZIL

The 2014 growth forecast for the region's largest economy, Brazil, was slashed to 0.3% from 1.3% in July. The 2015 growth forecast for Brazil also suffered a major downward revision to 1.4% from 2.0%.

The IMF expects the expansion of the Brazilian economy to be subdued during 2014-15 due to weak investment and slowing consumption in the context of tighter financial conditions and continued weakness in business and consumer confidence – as well as the economy's weak competitiveness.

The IMF's outlook for LAC's second biggest economy, Mexico, is much brighter, with an unchanged growth estimated for 2014 of 2.4% and a 0.1bp increase in the 2015 forecast to 3.5%.

The IMF said that it expects the Mexican economy to pick up speed in 2015 and beyond on the back of several structural reforms and stronger growth in its main trading partner, the US.

IMF CALLS ON GROWTH FOCUS

The recovery of the global economy has been weaker-than-expected this year and "global growth is still mediocre," said Olivier Blanchard, head of the IMF research department.

The IMF cut its global growth forecasts for 2014 and 2015 to 3.3% and 3.8%, respectively, from 3.4% and 4.0% in July. The world economy grew 3.3% last year.

There are also increased downward risks to the global growth forecasts, including financial and geopolitical risks, the IMF warned.

Increasing actual and potential output "must remain a priority" for most economies. given the weaker-than-expected growth in the first half and the downside risks to growth in the second half, said Blanchard.

The scope for emerging market economies to use macroeconomic policies to support growth varies and is more limited in countries with external vulnerabilities, he said.

"At the same time, emerging markets will need to deal with monetary policy normalization in the United States and possible shifts in financial market sentiment."

Blanchard also said that there is an "urgent need" in both advanced and emerging market countries for country-specific structural reforms to increase potential GDP growth or to make growth more sustainable.

"The challenge for both advanced and emerging market economies, is to go beyond the general mantra of 'structural reforms', to identify which reforms are most needed, which reforms are politically feasible," he added.