LIMA, Peru – Latin America's economy is expected to enter recession this year for the first time since the end of the global financial crisis as China's slowdown drives lower demand for the region's commodities, threatening to undo recent progress in reducing poverty, the International Monetary Fund said Wednesday.
The Washington-based lender, in a report released its annual meetings being held in Peru, said that the rate of economic growth in Latin America and the Caribbean was set to decline for the fifth consecutive year before rebounding in 2016.
Pulled down by a deep recession in Brazil and Venezuela, two of South America's largest economies, and by a smaller contraction in oil-dependent Ecuador, the economies of Latin America and the Caribbean are expected to shrink by 0.3 percent this year.
While a stronger U.S. economy and lower commodity prices should help manufacturers in Mexico, Central America and the oil-importing countries of the Caribbean, the biggest economies in South America, about half of whose exports are natural resources, are likely to suffer a protracted slump, the IMF said.
Venezuela's economy is expected to buckle by a whopping 10 percent even as it copes with widespread shortages and the world's highest inflation, around 200 percent, the IMF said. IMF Managing Director Christine Lagarde said Tuesday that she "hopes and prays" for Venezuela to regain its footing, but said the fund's outlook is hampered by the lack of information from authorities, who haven't published price or growth data since last year.
Distortive policies such as heavy foreign exchange controls and unsustainable printing of money to fund government spending are also fueling double-digit inflation and depressing economic activity in Argentina, the fund said. The IMF forecasts South America's second-largest economy is forecast to grow just 0.4 percent this year and contract by 0.7 percent in 2016.
Brazil, the region's largest economy, is projected to decline by 3 percent, depressed by a corruption scandal that has weakened investor confidence and paralyzed reforms needed to curtail years of runaway spending and tame inflation running at nearly 10 percent.
Amid the gloomier outlook, dollarized Panama is expected to be the region's strongest performer, projected to grow by 6 percent as a multi-billion dollar expansion of the country's canal is completed.
But even the region's most-open economies and strongest performers in recent years, such as Colombia and Chile, need to undertake long-term reforms to unlock productivity and withstand a prolonged slump in commodities prices, the IMF said.
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