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IMF cuts growth estimate for LatAm, revises forecast for key regional economies

The International Monetary Fund has lowered its economic growth projection for Latin America and the Caribbean amid expectations of a recession in Argentina and forecasts of slower growth in Brazil, according to the fund's latest World Economic Outlook report.

The IMF now sees the overall economy in Latin America and the Caribbean growing 1.2% in 2018 and 2.2% in 2019. Both estimates are down by 0.4 percentage points from the agency's previous forecasts made in July.

Continued monetary policy normalization in the U.S. and a stronger dollar have put pressure on the exchange rates and funding costs of several emerging market economies, including Brazil, Mexico and Argentina, and have led to further reductions in capital inflows, the report said.

The IMF now expects Argentina's economy to contract 2.6% in 2018, compared to a previous forecast for a 0.4% expansion. The economy is expected to shrink a further 1.6% in 2019, compared to a 1.5% growth forecast previously.

"In Argentina, tighter global financial conditions, together with a domestic corruption scandal and persistent uncertainty over the success of the stabilization plan underlying the program with the IMF, have contributed to financial market volatility," the report said.

Brazil's GDP, meanwhile, is seen growing 1.4% in 2018 and 2.4% the following year, continuing its gradual recovery from a multiyear recession. The new 2018 and 2019 forecasts are down 0.4 percentage point and 0.1 percentage point, respectively, from estimates made in July.

The IMF noted that the Brazilian real depreciated 14% between February and mid-September as domestic activity slowed and external financial conditions became tighter.

Elsewhere in the region, the IMF lowered Mexico's 2018 growth forecast by 0.1 percentage point to 2.2% and cut the country's 2019 growth forecast by 0.2 percentage point to 2.5%. In lowering Mexico's forecasts, the IMF pointed to the impact prolonged trade-related uncertainty had on investment and domestic demand.

"Venezuela's economy continues to decline for the fifth consecutive year, following a 14% drop in 2017," the IMF said. "Real GDP is projected to shrink by 18% in 2018 and a further 5% in 2019, driven by plummeting oil production, and political and social instability." Inflation in the country, meanwhile, is projected to reach 1,370,000% in 2018 before surging to a staggering 10,000,000% the following year.

The IMF also revised its 2018 growth forecast to 2% from 3% for Uruguay, to 4.1% from 3.7% for Peru, to 2.8% from 2.7% for Colombia, and to 4% from 3.8% for Chile.

The fund also said global expansion is forecast to decline to 3.7% for the rest of 2018 through 2019, 0.2 percentage point less than its previous estimate from April, as escalating trade tensions continue to represent one of the biggest threats to sustained growth.