The International Monetary Fund cut its growth forecasts for Latin America on Monday against a backdrop of deteriorating global growth and contagion risks if the euro zone crisis deepens and China's growth slows more than expected.
The IMF said overall growth in Latin America and the Caribbean would moderate to 3.2 percent this year - from 3.4 percent forecast in July. It still sees a pick-up in 2013, but trimmed its forecast to a 3.9 percent expansion next year, from 4.2 percent seen in July.
Growth expectations for both Brazil and Mexico - the region's two biggest economies - were also trimmed back. The IMF said central banks might have to cut interest rates if the global downturn intensified, although they still had to be alert to high inflation.
"Policymakers in the region must be alert to spillovers from weaker prospects in advanced economies and major emerging markets outside the region, volatile capital flows, and emerging domestic financial risks," the IMF said in its latest World Economic Outlook.
"Monetary policy should be the first line of defense if global growth slows more than expected, especially in economies with established and tested inflation-targeting frameworks."
The United Nations' regional economic body has also cut its growth forecasts, along with some private sector economists, as commodity exports suffer due to weaker growth in China, one of Latin America's main trading partners.
An assessment of spillover risks showed Latin America would be one of the regions to be hardest-hit from a sharper-than-expected slowdown in China, the IMF said. The region could also suffer more than others if the United States fails to avoid the "fiscal cliff," a tightening in fiscal policy in 2013.
Although near-term growth risks were to the downside, recent policy easing - in countries including Brazil and Colombia - should support a re-acceleration later in the year.
The IMF said it expected domestic demand to lead the way in Brazil, where growth was seen picking up to 4.0 percent in 2013, after an expected 1.5 percent expansion this year. In July, the IMF had seen 2.5 percent growth in 2012 and 4.6 percent in 2013.
Mexico's outlook was trimmed slightly to 3.8 percent in 2012 and 3.5 percent in 2013, both down 0.1 percentage points from July. Peru was expected to grow the fastest, at 6 percent this year and 5.8 percent in 2013, followed by Venezuela on 5.7 percent in 2012 but with a sharp slowing to 3.3 percent in 2013.
Chile and Colombia were both forecast to grow 4.4 percent in 2013 after expected 5 percent growth in Chile this year and predicted growth in Colombia of 4.3 percent.
The IMF warned that Venezuela and Argentina were particularly at risk of upside pressure on inflation, although this remained above the mid-point of the target range in many countries.
Argentina, which has been locked in a dispute with the IMF over its inflation and growth statistics, was seen growing at 2.6 percent in 2012 and 3.1 percent in 2013, while official inflation was seen at 9.9 percent this year and 9.7 percent in 2013.
(Reporting by Krista Hughes; editing by Andrew Hay)