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IMF now says...Caribbean economy to grow by 3.5%

Published:Thursday | April 19, 2012 | 12:00 AM

The International Monetary Fund (IMF) says Latin America and the Caribbean is "on a glide path to steady growth" as the global economy picks up pace.

But the Washington-based financial institution is warning that "dangers remain".

In its latest World Economic Outlook report, the IMF said the swings in risk aversion in global markets over the past six months have had significant effects on Latin America and the Caribbean (LAC), forecasting "moderate" growth of 3.75 per cent in the region this year and four per cent in 2013.

Specifically, the Caribbean economy is expected to grow by 3.5 per cent.

"High public debt and weak tourism and remittance flows continue to constrain the outlook for the Caribbean," the report said.

"The outlook for Central America, like that for Mexico, is closely tied to developments in the United States," the IMF said, noting that "spillovers to the region, both real and financial, from renewed crisis in Europe are likely to be limited".

Tighter macroeconomic policies

The IMF said that among commodity exporters in LAC, strong domestic demand growth moderated as tighter macroeconomic policies began to bear fruit and the external environment weakened.

And while economic activity in LAC is still subdued, strong real linkages with the United States "offer some upside prospects as the United States slowly recovers," according to the report.

"Spillovers to the region through trade, financial, and banking channels were active during recent months but with only limited effects on activity," the report said.

It said that initially "a rise in risk aversion took some pressure off a number of economies in the region that were threatening to overheat".

"But, after this pause, capital flows are returning and exchange rates are once again under pressure. Earlier policy tightening, however, is beginning to bear fruit," the international financial body said, noting that this combination of policy gains and recent resilience in the face of global sentiment swings means that the outlook is "promising".

"Greater resolve is required in reducing debt overhang in the Caribbean while addressing weak competitiveness," the IMF said in the report.