By Rodrigo Campos
(Reuters) – Stronger macroeconomic policy is partly behind the resilience of economies across Latin America and the Caribbean, the International Monetary Fund said Friday in its regional review of the Western Hemisphere.
The fund however warned that growth rates remain lackluster and investment levels remain historically low.
And even as unemployment across the region is also at historically low levels, “with most economies operating near potential… activity in the region has been generally moderating in recent quarters,” said in prepared remarks the IMF’s director for the Western Hemisphere, Rodrigo Valdes.
“We see risks around this baseline projection as broadly balanced, reflecting also more balanced global risks,” Valdes said.
The global lender sees inflation continuing to recede across the region, partly due to swift past action from central banks. In that view, the fund considers monetary policy easing should continue, though .
“It will be important to carefully calibrate the pace of easing to strike a balance between durably bringing inflation back to target, in the final stretch, and avoiding an undue economic contraction,” said Valdes.
Earlier this week, the IMF slightly lifted its 2024 view on economic output growth for Latam and the Caribbean to 2.0% from its 1.9% January forecast, in both cases calling for a deceleration compared with last year’s 2.3% growth rate.
The overall slowdown in growth is due in part to smaller rates of growth in the region’s largest economies, Mexico and Brazil.
PUBLIC DEBT AN ISSUE
Even as most economies in the region have withdrawn the stimulus brought by the pandemic’s economic shock, the fund is concerned that fiscal consolidation plans are now being put on hold.
“With public debt at high levels, fiscal policy should focus on rebuilding policy space,” Valdes said. “Timely fiscal tightening will also allow for faster normalization of monetary policy.”
Valdes referred to the “urgency” to speed up growth in the region, which at an average 2% in the medium term is not enough a pace to allow or spread-out prosperity.
With the region’s “high levels of poverty and inequality,” Valdes said, “maintaining social cohesion should be a centerpiece of fiscal consolidation plans.”
Last week, the World Bank downgraded its 2024 economic growth forecast for Latin America and the Caribbean to 1.6% from its previous 2.3% estimate, saying the region continues to lag growth rates registered in other parts of the world.
(Reporting by Rodrigo Campos; Editing by Alistair Bell)
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