Growth in Latin America and the Caribbean is set to pick up from 3 percent in 2012 to 3.5 percent in 2013, fueled by stronger external demand, favorable financing conditions and the effects of earlier policy easing in the European Union and the U.S., according to the International Monetary Fund’s “Regional Economic Outlook for the Western Hemisphere” report.
According to the report, medium-term risks for Latin America remain tilted to the downside. The key risk is a reversal of easy financing conditions and strong commodity prices that have prevailed since 2010.
The region would be particularly affected if a sharp slowdown in China or other key economies triggers a drop in commodity prices, the study showed.
Another risk is that lack of progress in addressing the medium-term fiscal challenges in key advanced economies could lead to a sharp increase in sovereign and corporate risk premiums, with a negative impact on global growth. Domestically, the risk of a deterioration of external and financial sector balance sheets has increased in some countries, the report said.