IMF Forecasts Sharper Regional Deceleration

Growth in the LatAm and Caribbean region will slow more than previously expected, according to the IMF’s latest World Economic Outlook, which cuts the global growth outlook to 3%. Regional GDP growth is projected to drop to 4.50% in 2008 from 5.50% in 2007, falling again to 3.25% in 2009. Argentina and Venezuela look set for the biggest fall, while Mexican and Brazilian growth are forecast to ease to 1.8% and 3.5%, respectively, in 2009. “The somewhat sharper deceleration in 2009 than envisaged in the July 2008 World Economic Outlook update reflects the weaker global outlook, softer commodity prices, and more difficult external financial conditions,” says the fund. “Growth in Brazil would come down below trend, and activity would remain sluggish in Mexico as exports and remittances are dampened by the US slowdown. Growth in Central America and the Caribbean is also expected to ease, reflecting the impact of slow U.S. growth on remittances, trade, and tourism, as well as high fuel costs,” it adds. The IMF notes that domestic demand has held up, but should be dampened as the global economy slows and monetary policy tightens to contain inflation. Headline inflation for the region as a whole rose to 8% in August, the highest in five years, although it is expected to moderate in the latter part of 2008 and 2009, helped by softening commodity prices, tighter monetary policy, and slowing demand growth, says the fund. “Inflation will remain at double-digit levels in a number of countries in the region, including Bolivia, Paraguay, Venezuela, and several Central American countries,” it adds.