NEW YORK/SANTIAGO (Reuters) - The IMF on Tuesday slashed its economic growth expectation for Latin America in 2019 by more than half compared with estimates from just three months ago, citing its downgrades to growth in both Brazil and Mexico, the region’s largest economies.
Latin America’s economic output is now expected to grow 0.6% this year, down from an expected 1.4% growth in the International Monetary Fund’s outlook from April.
Globally, the IMF expects GDP to grow 3.2% this year, or about 0.1% below its previous estimate.
Brazil’s 2019 growth estimate was cut to 0.8% from the April projection of 2.1%, bringing it in line with expectations from the Brazilian government and the central bank. Mexico’s expansion is seen at 0.9% from 1.6% three months ago.
The sharp cut to Brazil, by far Latin America’s largest economy, stems mainly from uncertainty over the future of legislation including a key pension overhaul. An initial vote cleared the lower house of Congress earlier this month, but full passage is still pending.
The initial vote, however, helped snap a run of 20 consecutive weeks of growth forecast downgrades by Brazilian economists in a central bank survey.
“Clearly the approval (of pension reform), the first vote, is a positive sign. We do assume the reform will pass and we have a pretty sizeable increase in growth for 2020 compared to this year,” Gian Maria Milesi-Ferretti, deputy director at the IMF’s research department, told Reuters.
“But it’s mostly in the coming quarters, whereas the revision is what we’ve seen so far.”
Mexico, on the other hand, faces an increasingly tough environment as investors continue to lose confidence in the policies of President Andres Manuel Lopez Obrador and as industrial output slides.
The IMF report also mentioned expectations for a slightly deeper than expected recession in Argentina in 2019 and a slower recovery in 2020.
“Progress has been made. Of course, you want to see the recovery before you say we have turned the corner,” said Milesi-Ferretti. “But clearly there are positive signs.”
“You want to re-establish the foundations for the economy to be more resilient and to avoid a more dramatic outcome if a confidence crisis turns more severe than what we have observed.”
Venezuela’s expected 35% contraction this year would bring the economic collapse of the oil-producing country to about 63% from 2015 levels, the data shows.
Latin America’s growth estimate for 2020 was cut to 2.3% from 2.4%, the IMF said.
GRAPHIC-IMF sharply cuts growth outlook for LatAm tmsnrt.rs/2XUvP4d
GRAPHIC-IMF cuts 2019 LatAm growth expectation tmsnrt.rs/32Uc3om
Reporting by Rodrigo Campos in New York and Dave Sherwood in Santiago; Editing by Peter Cooney and Matthew Lewis