The Star (St. Lucia) - Business Week - - DEVELOPMENT – MAURITIUS -

Wash­ing­ton, DC, United States — The In­ter­na­tional Mon­e­tary Fund (IMF) says its Re­gional Eco­nomic Out­look for the Western Hemi­sphere has marked down its growth fore­casts for Latin Amer­ica and the Caribbean to 1.2 per cent in 2018 and 2.2 per cent in 2019, from the May 2018 fore­casts of 2.0 per cent and 2.8 per cent, re­spec­tively.

“The mod­er­at­ing re­cov­ery is un­der­pinned by di­ver­gent growth out­comes across the re­gion,” the Wash­ing­ton-based fi­nan­cial in­sti­tu­tion said on Wednes­day.

In some of the re­gion’s largest economies, it said the re­cov­ery has slowed sharply “as coun­try-spe­cific char­ac­ter­is­tics am­plify the im­pact of grow­ing trade ten­sions and tight­en­ing mon­e­tary con­di­tions.”

“More­over, higher global oil prices cou­pled with in­creased po­lit­i­cal un­cer­tainty have damp­ened the near-term out­look in sev­eral economies in Cen­tral Amer­ica,” the IMF said.

But it said there are bright spots to the out­look. It said bet­ter terms-of-trade over the past year and im­prove­ments in con­sumer and busi­ness con­fi­dence have boosted the growth prospects in some An­dean economies (such as Colom­bia, Chile and Peru), adding that “ac­tiv­ity is re­cov­er­ing in the Caribbean, re­flect­ing the uptick in tourism ow­ing to ro­bust US growth”.

“De­spite the slow­down in re­gional eco­nomic ac­tiv­ity, pri­vate in­vest­ment is show­ing signs of life,” Ale­jan­dro Werner, di­rec­tor of the IMF’s Western Hemi­sphere Depart­ment, told a press con­fer­ence in Bali, In­done­sia.

Hav­ing con­tracted for three years in a row, Werner said pri­vate in­vest­ment in Latin Amer­ica and the Caribbean is es­ti­mated to have ”stopped be­ing a ma­jor drag to growth in 2017 and is gain­ing fur­ther strength”.

In the last quar­ter of 2017 and the first quar­ter of 2018, the con­tri­bu­tion of in­vest­ment to growth in the re­gion turned pos­i­tive and is pro­jected to con­tinue sup­port­ing the re­cov­ery this year and next, the IMF said. Nev­er­the­less, it said in­vest­ment lev­els are ex­pected to re­main below the lev­els ob­served in other re­gions, “which would be ex­plained in part by low sav­ing rates”.

In this re­gard, the IMF said prospects for long-term growth in the re­gion re­main mod­est at 2.8 per cent. It, how­ever, said eco­nomic prospects for the Caribbean are im­prov­ing.

“Growth in the re­gion is ex­pected to firm up this year and next, sup­ported by ro­bust US and global growth,” the IMF said. “Re­con­struc­tion from the dev­as­tat­ing hur­ri­canes of 2017 in some touris­mde­pen­dent coun­tries has been largely de­layed so far but is ex­pected to pick up in 2019.”

The IMF said ris­ing com­mod­ity prices and pro­duc­tion are pro­jected to lead to stronger growth for com­mod­ity ex­porters.

It said a slow­down in global trade, ow­ing to a range of fac­tors — in­clud­ing ris­ing pro­tec­tion­ism, an es­ca­la­tion of on­go­ing trade dis­putes, fluc­tu­a­tions in en­ergy prices, and an abrupt tight­en­ing of global fi­nan­cial con­di­tions — “could un­der­mine the nascent re­cov­ery and fur­ther re­duce long-term growth prospects in Latin Amer­ica and the Caribbean”.

The IMF said re­gional and do­mes­tic risks have also in­ten­si­fied since the spring, in­clud­ing po­lit­i­cal risks, re­gional spillovers, and the re­cur­rence of ex­treme weather events such as hur­ri­canes in the Caribbean.

It said Latin Amer­ica and the Caribbean coun­tries con­tinue to carry pri­mary deficits that ex­ceed debt-sta­bil­is­ing lev­els, lim­it­ing the scope for gov­ern­ment sup­port.

“Higher en­ergy prices and con­tin­ued de­pre­ci­a­tion limit the room to ma­noeu­vre in­ter­est rate pol­icy,” it said, adding that “Cred­i­ble pol­icy frame­works should guide poli­cies and ex­pec­ta­tions over time to pro­tect the re­cov­ery from a less be­nign ex­ter­nal en­vi­ron­ment”.

“With ex­ter­nal dol­lar fi­nanc­ing needs be­ing rel­a­tively high in some coun­tries and cap­i­tal flows eb­bing, pol­i­cy­mak­ers in the re­gion should be pre­pared for fur­ther cap­i­tal out­flow pres­sures,” the IMF urged. “In this re­gard, ex­change rate flex­i­bil­ity (where ap­pli­ca­ble) will re­main key. For­eign ex­change in­ter­ven­tion should be lim­ited to con­tain­ing ex­cess volatil­ity in the event of dis­or­derly mar­ket con­di­tions.”

Im­ple­ment­ing key re­forms can build growth with wide­spread ben­e­fits. “De­spite the in­creased down­side risks, many coun­tries in the re­gion should con­tinue to fo­cus on much-needed struc­tural re­forms that would boost pro­duc­tive ca­pac­ity and help build strong, durable, and in­clu­sive growth over the medium term,” the IMF con­tin­ued.

It said re­forms should fo­cus on in­creas­ing sav­ing and in­vest­ment rates, re­duc­ing mis­al­lo­ca­tion of re­sources, mak­ing labour mar­kets more flex­i­ble, lib­er­al­is­ing trade, re­duc­ing in­for­mal labour mar­kets, and im­prov­ing the busi­ness cli­mate.

The IMF head­quar­ters in Wash­ing­ton, DC, United States

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