IMF warns of pitfalls as report highlights uneven global growth

A recent report by the International Monetary Fund (IMF) warned of uneven economic growth around the world and rising tensions in trade.

Xinhua spoke with noted Argentine economist Jorge Marchini, vice president of the Foundation for Latin American Integration (FILA), about the IMF’s latest “World Economic Outlook Update” released on Monday.

“There is unevenness in the effects of growth. One (region) is the US, which has growth and impetus, the other is Europe, which is in neutral. The Asiatic drive is important and in Latin America, [growth] is negative,” said Marchini.

The IMF forecast global economic growth for this year and the next to register 3.9 percent, but not across the board, with gross domestic product (GDP) contracting in some regions and expanding in others.

For Latin America, the IMF downgraded its growth forecast from 2 percent to 1.6 percent, mainly due to sluggish growth in Brazil and Mexico, the region’s No. 1 and No. 2 economies, and the financial crisis gripping its third-biggest economy, Argentina.

High inflation, a volatile currency and a huge public deficit led Argentina’s government to recently apply for a $50 billion loan from the IMF.

Marchini blamed uneven expansion on the current interrelated dynamics of trade, which leads to ripple effects.

“The world today opens pathways to economic growth for some countries, but at the same time that tends to cause an imbalance in the global economy,” he said. As an example, he noted the US, whose economy shows signs of recovery, is increasingly applying protectionist measures that impact other economies, especially in nearby Latin America.

“There is an international climate with many unknowns and fears, which sparks protectionism in the global economy and successive tensions between the US and China and Europe, with repercussions in Latin America,” said the economist.

“It’s a complicated international scenario,” said Marchini. “The change in US interest rates [which rose to 2 percent] has also had a negative impact on Latin American countries, practically of which have a balance of payment deficit, meaning they spend more than they earn.”

While in the past two years the global economy has shown signs of recovery following the 2008 world financial crisis, countries continue to suffer from the aftermath, especially those with high debt or very open and expansive monetary policies, he said.

Latin America’s downgraded growth forecast is a reflection of recent changes in the political landscape of its leading economies, said Marchini. Argentina, for example, has shifted from the early optimism that marked the first two years of President Mauricio Macri’s term to greater “pessimism,” following the devaluation of the national currency.

Mexico is in a kind of holding pattern. The renegotiation of the North American Free Trade Agreement (NAFTA) with the US and Canada is dragging on. At the same time, the country elected its first left-of-center president, Andres Manuel Lopez Obrador, on July 1, but he doesn’t take office until December 1.

“In Mexico, the renegotiation of NAFTA plus the political change have generated a measure of doubt regarding what could happen in terms of Mexico-US ties,” said Marchini.

“In Brazil, the picture is above all political, taking into account that the country is mired in a slow economy and also finds itself in an election period with many unknowns,” added Marchini.

Brazilians go to the polls on October 7 to elect a new president, but the field of candidates has yet to be determined.

Other regional countries are also in flux, he said, including Colombia, where the government will be changing hands, and Venezuela, which continues to grapple with “serious (economic) difficulties.”