The International Monetary Fund (IMF) cut its global economic growth forecasts for the third time this year and anticipated Argentina’s economy will drop 1.7 percent this year and 1.5 percent in 2015, according to its flagship World Economic Outlook report released yesterday.
The figures were unveiled as Economy Minister Axel Kicillof and newly-appointed Central Bank governor Alejandro Vanoli are set to travel today to Washington to attend the annual summit of the IMF and the World Bank. It will be Kicillof’s second time at the summit and Vanoli’s first.
The IMF said poverty will be 8.8 percent in 2014 and nine percent in 2015 and made no estimations regarding inflation. Meanwhile, it estimated a deficit in the balance-of-payments current account of 0.8 percent of the country’s GDP this year, a figure that will grow to 1.1 percent in 2015.
In a brief description of the country, the IMF said Argentina is going through “deepening macroeconomic and policy imbalances that are manifesting themselves as high inflation, negative growth and a rising differential between the parallel and official exchange rates.”
In Latin America, the growth rate is forecast to decrease by half this year, to around 1.3 percent, due to declining exports as well as domestic constraints. Growth is expected to rebound to around 2.2 percent in 2015. Brazil, Argentina’s main trade partner, will have an economic growth of 0.3 percent this year and 1.4 percent in 2015. Brazilian Finance Minister Guido Mantega said the International Monetary Fund is being “too pessimistic” in its economic growth forecast for the country.
The IMF warns that Latin American economies need to embark on reforms to improve competitiveness and eliminate supply bottlenecks to avoid years of slow growth. In the short term, the region’s economy could be further damaged by slower investment in commodity-hungry China and a jump in US interest rates.
“Without such reforms, growth could well continue to disappoint relative to the high expectations created by the past decade,” the Fund said in the report.
The IMF points to Mexico as an example of a country that may reap the benefits of structural reforms in coming years. Mexican President Enrique Peña Nieto has succeeded in pushing through legislation to open up the country’s telecom and energy sectors. Mexico will likely grow 2.4 percent in 2014 and 3.5 percent in 2015, the IMF said.
Global growth
The Washington-based lender forecasts global growth to average 3.3 percent in 2014 — unchanged from 2013 — and to rise to 3.8 percent in 2015. The weaker than expected growth outlook for this year reflects setbacks to economic activity in the advanced economies during the first half of 2014, and a less optimistic outlook for several emerging market economies, the report said.
The IMF has now cut its current-year growth forecasts nine out of 12 times in the last three years as it consistently overestimated how quickly richer countries would be able to pull free from high debt and unemployment in the wake of the 2007-2009 global financial crisis. It also lowered its expectations for longer-term potential growth, something its chief economist Olivier Blanchard called “the force from the future.”
“You have these forces from the past, the forces from the anticipated future… and I think that explains the sequence of revisions that we’ve had,” Blanchard said in an interview.
The IMF again urged countries to carry out an array of structural reforms, such as improving labour market policies, fighting tax evasion and raising infrastructure spending, to avoid the risk of economic stagnation.
With interest rates already near rock-bottom in many advanced economies, it is harder to boost demand, Blanchard said, echoing the concerns of “secular stagnation” raised by former US Treasury Secretary Lawrence Summers.
“On whether we’ll be able to… increase demand enough to get to potential output, I think we don’t know yet,” Blanchard said at a news conference. “It may be difficult.”
The Fund’s gloomy projections set the stage for a gathering of the world’s top economic policymakers in Washington this week.
While richer countries like Britain and the United States are seeing stronger expansions, the IMF downgraded forecasts for the three biggest economies in the euro zone currency bloc — Germany, France and Italy — and said it was essential that advanced economies maintain monetary stimulus.
It also lowered growth projections for Japan and Brazil, among others. The IMF said potential growth in emerging markets is now 1.5 percentage points lower than what it foresaw in 2011.
“There is a risk that the recovery in the euro area could stall, that demand could weaken further, and that low inflation could turn into deflation,” Blanchard said in a foreword to the report. “Should such a scenario play out, it would be the major issue confronting the world economy.”
Source: Buenos Aires Herald