IMF cuts 2022 Latin America growth forecast; Mexico, Brazil see big hits

• The International Monetary Fund (IMF) on Tuesday lowered its 2022 economic growth forecasts for Latin America and its two largest economies- Mexico and Brazil, citing inflation, tighter monetary policy and a lower growth estimate for the United States as keys to the downgrades. 
• The IMF reduced its growth expectations for Mexico and Brazil by 1.2 percentage points each to 2.8% and 0.3%, respectively, while the estimate for Latin America and the Caribbean was cut by 0.6 percentage point to 2.4%. 
• The IMF in its World Economic Outlook for Brazil posited that "the fight against inflation has prompted a strong monetary policy response, which will weigh on domestic demand". The benchmark Selic interest rate, which is the Brazilian federal funds rate, was hiked 725 basis points in less than a year to the current level of 9.25%. Although necessary to contain inflation, the higher rates will result in an increase in the borrowing cost, which will reduce consumer spending and investment, leading to lower economic growth. 
• The IMF also reported that Mexico will be slightly affected by inflation and higher rates, compounded by an expected drop in output growth from the United States, its most important trading partner.

 (Sources: Reuters & NCBCM Research)