IMF Sees Deeper Recession in Argentina, Slower Growth in Brazil

(Bloomberg) -- The International Monetary Fund forecast that a deeper-than-expected recession in Argentina and slower growth in Brazil will weigh on the economic performance of Latin America this year and next.

The region will grow 1.2 percent in 2018 and 2.2 percent in 2019, according to the IMF’s World Economic Outlook released early Tuesday in Bali, where the Fund holds its biannual meeting this week. Both estimates are 0.4 percentage points lower than the prior forecasts in July. Latin America’s gross domestic product expanded 1.3 percent in 2017.

Tighter global financial conditions are weighing on Latin America’s economy, projected to be the weakest among emerging markets this year. Further holding the region back is Argentina’s performance, which the IMF revised to a contraction of 2.6 percent this year and 1.6 percent in 2019. That’s worse than the country’s official forecast for GDP declines of 2.4 percent and 0.5 percent this year and next, respectively.

New 2018 forecastPrior 2018 forecast
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Hurting the Argentine economy are a drought that reduced agricultural output, a corruption scandal, higher borrowing costs, and “persistent uncertainty over the success of the stabilization plan” that underlies its IMF bailout, the Fund said in its report.

In Brazil, a nationwide trucker strike that ground the economy to a halt in May is the main reason for the fund’s negative GDP revision this year. While Brazil’s benchmark rate remains at an all-time low, tighter external financing conditions pose a risk, the IMF warned. Monetary policy should remain “accommodative” given high unemployment, the institution added, noting that bank credit continues to lag, particularly for non-financial firms.

The IMF also lowered its 2018 growth projection for Mexico, to 2.2 percent from 2.3 percent.

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