South America to enter recession in 2015 - IMF

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Tuesday, April 14, 2015

Negative growth in Brazil, Argentina and Venezuela is set to drag South America into a recession in 2015, according to the latest World Economic Outlook published by the International Monetary Fund (IMF).

Brazil is set to contract 1.0% this year (240bp below the IMF's October forecast) as private sector confidence remains stubbornly weak due to the prospect of electricity and water rationing, as well as the potential fallout from the Petrobras scandal, among other issues.

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The Argentine economy is expected to shrink 0.3% in 2015, as strong public spending and private consumption only partially offset declining investment and exports, said the IMF.

Meanwhile Venezuela's economy is projected to contract 7.0% due to the collapse in oil prices, while policy distortions and government controls have intensified shortages of basic goods and driven inflation to over 60%.

GROWTH DRIVERS

Conversely, the Andean economies of Bolivia, Peru, Colombia and, to a lesser extent, Chile will be the main sources of economic growth in the region. Nevertheless, the 2015 growth forecasts for these countries are 0.5-1.3% lower than in October.

Bolivia is forecast to post the strongest growth (4.3%), while Peru, Colombia and Chile can expect to expand 3.8%, 3.4% and 2.7%, respectively.

"The downturn in global commodity markets remains the main drag on activity in South America, even though lower oil prices and a solid US recovery provide a boost to other parts of the region," said the IMF.

A BROADER VIEW

The Latin America and Caribbean region is expected to grow 0.9% this year, according to the report, bolstered by growth of 4.2% in Central America, 3.7% in the Caribbean and 3.0% in Mexico.

The region posted an average growth of 4.1% in the 2004-2013 period, and in October was projected to expand 2.2% this year.

"With no apparent impulse for a near-term pickup in activity and the prospect of persistently lower commodity prices and reduced policy space in many economies, regional growth is now projected to dip below 1 percent," said the IMF.

"Meanwhile, output remains close to potential, as evidenced by still-low unemployment in many economies."

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