Tags: commodity | copper | IMF | boom

IMF Warns South America on Risks of Bust After Commodity Boom

Thursday, 24 Apr 2014 11:32 AM

South American countries should consider creating fiscal stabilization funds to buffer their economies against a decline in commodity prices expected to damp growth in the coming years, the International Monetary Fund said today.

Setting up stabilization funds would allow the economies to boost capital spending and increase productivity to sustain growth as a decade-long commodity boom peters out, the Washington-based fund said in a report posted on its website.

Economic growth is decelerating as prices for the region’s copper and iron ore fall on slower demand from China, the world’s largest consumer of industrial metals. The fund on April 8 cut its 2014 growth forecast for South America to 2.3 percent from an October estimate of 3.1 percent and an average 5.1 percent in the last decade.

Commodity prices “are projected to moderate further over the medium term as supply is increasing while demand growth from large emerging markets is expected to slow,” the report said. “To avoid the boom-bust dynamics often associated with commodity cycles, countries should work to weaken the link between commodity prices and economic activity.”

Global commodity prices almost tripled between 2003 and 2013, fueling private investment and government spending in South America, which is home to the largest exporter of copper and soybeans. Though average commodity prices during the next six years may remain 10 percent higher than during the 2003 to 2011 boom years, the lack of price growth may weigh on economic activity, the fund said.

“Countries need to rebuild their buffers, not least to be prepared for any future negative economic shock,” the IMF said.

Brazil, Chile and Colombia have increased their capacity to adopt countercyclical fiscal policies in recent years, the fund said, adding that the creation of fiscal buffers needs to be transparent and sustainable.

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South American countries should consider creating fiscal stabilization funds to buffer their economies against a decline in commodity prices expected to damp growth in the coming years, the International Monetary Fund said today.
commodity, copper, IMF, boom
295
2014-32-24
Thursday, 24 Apr 2014 11:32 AM
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