'Low gear' is IMF’s description of Latin America’s economy

'Low gear' is IMF’s description of Latin America’s economy

International Monetary Fund worries Brazil’s “structural balance” is deteriorating.

December 8, 2017
Recycling Today Staff

The Washington, D.C.-based International Monetary Fund (IMF), in an economic outlook report released in October 2017, indicates economic activity in Latin America remains on track to recover gradually in 2018 and 2019, but that rebound will not be distributed evenly.

The IMF also states that “recessions in a few countries in the region [have] come to an end.” The organization also contends that “long-term growth remains weak, hampering income convergence toward advanced economy levels.”

The report’s authors state that “fiscal space to support demand is limited, particularly for commodity exporters, but monetary policy can play a supportive role because inflation has been moderating rapidly.” They urge governments in the region to “press ahead with much-needed structural reforms to ensure sustainable and inclusive growth.”

Add the authors, “Priorities include closing infrastructure gaps, investing in human capital, encouraging female labor force participation, reducing labor market informality, enhancing governance and curbing corruption, and furthering trade and financial integration.”

Reviewing the performance of current governments, the report states, “While Brazil’s structural balance is expected to deteriorate throughout the projection horizon, Mexico and Argentina are expected to continue to adjust during 2018 and 2019. The adjustments in Chile and Peru are expected to be more backloaded, starting in 2018 and 2019.”

While the report can be considered mildly optimistic, the authors also express concern about the slow pace of economic growth in the region. “Despite this ongoing recovery, prospects for strong long-term growth in Latin America and the Caribbean look dimmer now than they did a few years ago. In the medium term, Latin America is projected to grow 1.7 percent in per capita terms. This growth rate is almost identical to the region’s performance over the past quarter century—a figure that is well below the rates observed for emerging market and developing economies (3.25 percent) and vastly below the growth rate in China (9 percent). Worryingly, these growth rates are only marginally better than those in advanced economies.”

Argentina is expected to perform slightly better than the 1.7 percent regional average, with the report’s authors forecasting GDP growth in 2018 roughly equivalent to its 2.5 percent growth in 2017. “Private domestic demand continues to gradually improve amid tight macroeconomic conditions, reflecting the beginning of fiscal rebalancing and still-high real interest rates, consistent with the disinflation process,” the report’s authors write relative to Argentina.

Brazil’s GDP growth is anticipated to lag at 0.7 percent in 2017 and 1.5 percent in 2018. “Ongoing weakness in investment and an increase in political and policy uncertainty led to a downward revision of the 2018 forecast by 0.2 percent,” the IMF report authors write of Brazil. “A gradual restoration of confidence—as key reforms to ensure fiscal sustainability are implemented—should raise growth to 2 percent in the medium term.”