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By Silvio Cascione
BRASILIA (Reuters) - The next two years look more challenging for Latin American economies than previously thought, with prospects for slower growth and higher inflation defying recent market optimism about emerging markets.
Prospects for economic growth in 2014 and 2015 were down across the board from a similar Reuters poll in January for all seven major Latin American countries except Colombia, according to the consensus view of over 50 economists polled.
That contrasts with encouraging signs from other regions such as Europe and the United States. It also suggests that a recent rally in foreign exchange and stock markets in places like Brazil and Chile might not last.
Forecasts for economic growth this year were cut by 0.8 percentage points on average, with Argentina and Venezuela now expected to be in a full-blown recession and Brazil growing by less than 2 percent - its fourth straight year of weakness.
The outlook for 2015 was also downgraded for five countries - Argentina, Brazil, Chile, Mexico and Venezuela.
"Unfortunately, lower growth for the region does not seem to be a temporary event. What is becoming clearer is that, probably with the exception of Mexico, LatAm may have to endure a tough period of reforms and productivity gains in the years ahead," said Andre Loes, chief economist for Latin America with HSBC.
Little has changed in the world economy since January to justify second thoughts about Latin America's growth prospects. Indeed, despite the growing consensus that China's demand for commodities such as copper and iron ore will grow more slowly, the global economy has appeared to be on a more solid footing.
Emerging economies should actually benefit from faster global growth, Brazil's Finance Minister Guido Mantega said on Tuesday as he explained his estimate that Brazil will grow by 3 percent next year.
It is an optimistic forecast compared to the consensus view for 2.2 percent expansion in the Reuters poll.
What is holding back Latin America then are mostly local problems, economists noted: dimming confidence in Brazil, rampant inflation in Argentina and Venezuela, and slowing investment growth in Chile and Peru, to name a few.
Interest rates are also expected to go up through 2015 from Mexico to Chile, following the expected tightening in the U.S. monetary policy, the poll showed; in Colombia, for example, the central bank is expected to jack up interest rates from the current 3.25 percent to 5.0 percent.
"In recent years, growth in several countries - with the notable exception of Mexico - has been driven by a rapid expansion of credit. But we think this will now have to slow," economists with Capital Economics wrote in a research note.
The 2014 soccer World Cup, which kicks off on June 12, will do little to boost Brazil's economy, the poll suggested. More than 600,000 soccer fans are expected to visit Brazil over the next few months, but they could find half-finished airports and chaotic public transportation in many cities.
Economists pointed out that the region as a whole looked less vulnerable to market instability and possible capital flights than a decade ago, as the years of prosperity over the last decade helped Latin America build large currency reserves and improve sovereign debt profiles.
Still, subdued growth could impact local assets. A separate Reuters poll early this month showed most Latin American currencies will probably weaken over the next 12 months despite higher yields as economic prospects deteriorate. <BRL/POLL>
(Additional reporting by Noe Torres in Mexico City, Nelson Bocanegra in Bogota, Juliana Castilla in Buenos Aires, Ursula Scollo in Lima, Anthony Esposito in Santiago and Eyanir Chinea in Caracas; Editing by Chizu Nomiyama)