April 12, 2016 / 1:00 PM / 3 years ago

Brazil's worsening crisis to drag on Latin America's growth -IMF

BRASILIA, April 12 (Reuters) - A prolonged recession in Brazil fanned by political turmoil will drag on economic growth for the next two years in Latin America, a region already reeling from falling commodity prices, the International Monetary Fund said on Tuesday.

In its World Economic Outlook, the IMF revised its 2016 recession estimate for the region to 0.5 percent from 0.3 percent. It would be Latin America’s second straight year of contraction and the worst performance of any region - including the slow-recovering Euro area.

Although the IMF expects most of the region’s economies to pick up steam in 2017, growth will remain moderate given the impact of what could be Brazil’s worst recession in more than a century.

The Fund sees Latin America growing 1.5 percent in 2017.

The worsening political crisis that could oust leftist President Dilma Rousseff in the coming weeks has thrown Brazil further into chaos by slashing investment and consumer spending in what was until a few years ago an emerging success story.

“Domestic uncertainties continue to constrain the (Brazilian) government’s ability to formulate and execute policies,” said the IMF, which expects Brazil’s economy to contract 3.8 percent this year and level off to zero growth in 2017.

The IMF warns that the uncertain pace of recovery in Brazil could force another downward revision of its already sluggish global economic growth forecast.

On the other hand, the region’s second-biggest economy, Mexico, is expected to remain in positive territory this year with 2.4 percent growth and 2.6 percent expansion in 2017 due to the recovery of its main trade partner, the United States.

In another bright spot in the region, Argentina will likely bounce back in 2017 with 2.8 percent GDP growth after a 1 percent contraction this year as new President Mauricio Macri moves to fix economic imbalances.

However, the region’s other underperformer, Venezuela, will continue to see GDP shrink because of lingering political woes.

The IMF called on Brazilian authorities to persevere in efforts to rebalance the country’s overdrawn fiscal accounts and seek reforms to ease mandatory spending.

However, the political turmoil in Brazil that stems from a massive corruption investigation that has ensnared some of the country’s political and business elite has forced Rousseff to shelve much-needed pension system reform. (Reporting by Alonso Soto; Editing by Alan Crosby)

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