October 7, 2014 / 1:05 PM / 5 years ago

Brazil economy faces gloomy outlook without reforms: IMF

BRASILIA (Reuters) - The Brazilian economy will likely have a mild recovery next year as electoral uncertainty fades, but still lag regional peer Mexico that should grow faster after a series of economic reforms, the International Monetary Fund said on Tuesday.

The global lender cut its growth forecast for Latin America’s largest economy by 0.6 percentage point to 1.4 percent in 2015 due to dwindling investment and moderation in employment and credit growth. In its flagship “World Economic Outlook,” the IMF also revised down Brazil’s growth for this year to just 0.3 percent from its July estimate of 1.3 percent.

Four years of lackluster growth in a once-booming Brazil have brought the economy to the center of a political debate between leftist incumbent Dilma Rousseff and pro-market candidate Aecio Neves in what is expected to be a tight second-round of presidential elections on Oct. 26.

Rousseff, who placed first in Sunday’s first-round vote, has promised to put Brazil back on the growth track, but without the painful adjustments that could increase unemployment and reduce benefits for the poor.

Neves, a former governor and market favorite, has said he is not afraid of cutting public spending and raising fuel prices to win back investors worried about Rousseff’s interventionist style.

Critics say neither candidate is proposing any of the deep reforms needed to overhaul the country’s burdensome social security system and massive red tape.

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 U.S. 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 that estimates the region’s average growth at 1.3 percent this year, its lowest rate since the global financial crisis of 2009.

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 Pena 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, said the IMF, keeping its estimates for the Latin America’s No.2 economy largely unchanged from its previous forecast released in July.

Editing by Chizu Nomiyama

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