Roundup: South America's economic outlook "very challenging": IMF

The economic outlook for South America "remains very challenging," according to a report released by the International Monetary Fund (IMF) in Santiago, Chile, Wednesday.

The regional study, titled "Western Hemisphere: Northern Spring, Southern Chills," says that while Mexico and Central America will benefit from an economic upturn in their neighbor to the north, the United States, South America's main economies, including Brazil and Venezuela, will continue to struggle.

The regional growth "is projected to decline for a fifth consecutive year in 2015, dipping below 1 percent," and "weakness is concentrated among South America's commodity exporters" suffering from a drop in prices, the report says.

For most of the Caribbean, Central America and Mexico, meanwhile, "growth is projected to be steady or stronger," thanks to "lower oil bills for importers and robust economic recovery in the United States," the report says.

In an interview posted on the IMF website, Alejandro Werner, the director of the agency's Western Hemisphere Department, said " we are projecting 0.9 percent growth for all of Latin America, the lowest rate of growth in the region in the last 14 years."

Brazil "is undergoing its most serious economic downturn in more than two decades," affected by low investor confidence in a business sector that lacks competitivity, compounded by the ongoing corruption scandal at the state oil giant Petrobras. Consumer confidence has also taken a hit, due to "elevated inflation, tighter credit supply, and an incipient weakening of the labor market." While the government's "move to tighten macroeconomic policies" will further weaken demand in the short term, "it should help to improve prospects for investment over time," the report says.

Mexico, the region's second largest economy after Brazil, is expected to see 3 percent growth in GDP this year, driven by " stronger external demand" from the U.S. "Potential longer-term gains from reforms in the telecommunications and energy sector remain significant, though persistently low oil prices could dampen investor interest over time," the reports says.

In the region's No. 3 economy, Argentina, "adverse terms-of- trade developments (notably the sharp drop in soy prices) weak activity in Brazil, and the renewed appreciation of the real effective exchange rate have added fresh headwinds to growth," according to the report, which cites the "significant gap between the official and informal exchange rate of the peso."

Still, the region's economies have made headway, according to the department's director.

Asked how the U.S. Federal Reserve's intention to raise interest rates will affect Latin America, Werner said "the region has built important buffers ... and has good fundamentals -- abundant liquidity, international reserves and solid financial systems -- so, in case a spark of volatility happens, it should be able to manage it ... but countries should continue to build resilience."

The IMF is expecting the region to see "a moderate recovery in 2016," but to ensure long-term growth countries must focus on making a range of improvements, including boosting infrastructure and diversifying their economies, and improving education, the rule of law, the efficiency of their judicial systems and the business environment in general," said Werner.

"In the future, the external environment will not be as favorable, therefore the sources of growth should be much more homegrown," he added. Endite