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IMF Says Economic Slowdown In The Caribbean Continues

MEXICO CITY, Mexico Apr. 28, (CMC) – As the global recovery continues to struggle to gain its footing, the International Monetary Fund (IMF) says growth in Latin America and the Caribbean has been marked down further, and is likely to contract for the second consecutive year in 2016.

The IMF’s latest “Regional Economic Outlook for the Western Hemisphere,” released here, yesterday, projects that the region is set to contract by 0.5 percent in 2016—marking two consecutive years of negative growth for the first time since the Latin American debt crisis of 1982–83.

“This rate, however, masks the fact that many countries continue to grow, modestly but surely, whereas a small number of economies—representing about half of the region’s economy—face recession, largely as a result of domestic factors,” the IMF said.

It explained that the deceleration in activity reflects weak external demand, further declines in commodity prices, volatile financial conditions, and for some important domestic imbalances and rigidities.

At the same time, the IMF said many countries have continued to experience large exchange rate depreciations, mainly as a result of deteriorating terms of trade and external demand.

The Washington-based financial institution said growth prospects continue to be favorable for the tourism-based countries in the Caribbean.

In contrast, however, the IMF said growth prospects in the Caribbean are deteriorating for commodity-based economies.

The report also cited risks from a slower-than-projected investment recovery for Latin America and the Caribbean “if tighter financial conditions and lower growth prospects lead to balance sheet adjustments among companies that are increasingly indebted in foreign currency”.

The IMF said growth prospects, over the next five years, will likely remain subdued, particularly for those countries facing lower commodity prices and weak investment.

The IMF urged that, throughout the region, policies and economic reforms be designed to manage this transition.

It said that where further accommodation might be warranted, macroeconomic policy space is limited.

In particular, the IMF said fiscal space is constrained by high debt, slower growth and lower commodity revenues.

The IMF said exchange rate flexibility continues to be critical to helping economies adjust to persistently lower commodity prices.

“Where central banks enjoy strong credibility and exchange rate pass-through to inflation is limited, monetary policy can remain accommodative if needed to support demand,” the bank said.

“However, monetary policy should be geared toward preserving central bank credibility, if medium-term inflation expectations are rising,” it added.

The report also mentioned that growth in Latin America and the Caribbean is expected to remain below historical trends for the foreseeable future.

It cited several reasons, such as inadequate infrastructure networks, shortcoming in quality education and relatively low export diversity, in addition to lower commodity prices.

“Structural policies, aimed at resolving some of these bottlenecks, could help raise potential output,” the report said.

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