The Latin American and Caribbean region will notice a slight slowdown in its economy this year, largely caused by slower activity in its main growth engines, Brazil and Mexico, the International Monetary Fund (IMF) said on Tuesday.
The global macroeconomic environment, lower demand for exportable raw materials and the impact of high interest rates will affect a region that has pending fiscal adjustments to balance budgets, according to the April Global Economic Outlook (WEO) report released by the IMF in its spring meetings with the World Bank.
The Fund, based in Washington, estimated that the region's Gross Domestic Product will grow by 2% as a whole this year after advancing 2.3% in 2023, which represents an upward adjustment of 0.1 percentage points. compared to its advance report in January but reflects a drop in activity expected for the short term.
“Despite many gloomy predictions, the world has avoided a recessionthe banking system has for the most part demonstrated resilience, and the main emerging market economies have not suffered sudden stops in capital inflows,” the agency said in a statement.
In 2025, Latin American economies will expand at a rate of 2.5%, according to the outlook, which reflects an expected relaxation of the current restrictive monetary stance of central banks in the coming months and a more positive external outlook.
In the region's leading economy, Brazil, the IMF said it expects fiscal consolidation, a lower contribution from the agricultural sector and lagged effects of the tight monetary stance that will lead GDP to moderate its expansion to 2.2% this year from the calculation of the 2.9% from last year.
Estimates for Mexico were measured, with activity projected to expand 2.4% this year from 3.2% in 2023, following weaker macroeconomic readings in recent months that included a contraction in manufacturing, the organization said.
The forecasts for Argentina were also meager, at a time when the South American country is going through a serious recession and hyperinflation from which it has not been able to shake off. The Fund estimates that Latin America's third-largest economy will contract by 2.8% this year to recover in 2025 with an expected growth of 5.0%.
Attention to raw materials
The IMF highlighted that the region is beginning to perceive the desired effects of its policies designed to combat inflation, which has been decreasing unevenly although with notable declines in the underlying indicators.
Still, he warned that there could be volatility in raw materials markets as a result of lower imports from consuming nations and abundant supplies. In particular, the Fund estimates that industrial metals prices will decline on average 1.8% during 2024 due to weaker industrial activity in Europe and China.
“Countries exposed to commodity markets with relatively low elasticities, especially metals, may require fiscal buffers and space in their monetary policy to prepare for potential turbulence,” the report said.
The new projections also highlight the improvement in the financial conditions of countries such as Brazil and Chile, whose central banks are on the right path with important cuts in their reference interest rates, although the most recent data indicate that domestic consumption has not yet finished take off.
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