November 15, 2011 / 7:41 PM / 8 years ago

IMF cuts outlook for Paraguay's economic growth

* Slower growth on weaker farming sector, beef industry

* Inflation seen at 5.5 pct this year, within target range

ASUNCION, Nov 15 (Reuters) - Paraguay’s economy is seen growing by 4.5 percent this year and next, the International Monetary Fund said on Tuesday, lowering its previous forecast for growth in the poor South American country.

The IMF said in July it expected the South American country’s agriculture-based economy to expand by 6.7 percent this year and 5.5 percent in 2012.

“This slowdown is mainly the result of more moderate levels of agricultural growth, as well as a scarcity in cement and problems accessing the key beef export market,” the IMF said in a statement as part of a periodic review.

Paraguay is the world’s No. 4 soybean supplier, and its economy grew 15 percent last year due in part to the strong performance of the farming sector.

Economic growth slowed to 4.1 percent in the second quarter year-on-year due to global financial woes and weakness in the construction and cattle industries after a foot-and-mouth outbreak earlier this year.

The IMF said inflation was expected to come in lower than a previous estimate and end this year at 5.5 percent, within the central bank’s target range of between 2.5 percent and 7.5 percent.

Lisandro Abrego, the head of the IMF mission, warned that the country could face greater inflationary pressures and a budget deficit for the first time in eight years if a budget bill already passed by the lower house takes effect.

Lawmakers approved a hefty wage hike for state employees that the government says is unsustainable. The bill must still be approved by the Senate and signed into law by President Fernando Lugo.

“We’re worried about what’s happening with the budget, especially the huge salary increase that lawmakers have approved, which is more than 30 percent,” Abrego said.

Consumer prices are seen rising slightly above 6 percent in 2012 as a result of the expected wage hikes, the IMF said.

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