BRASILIA (Reuters) - Most Latin American economies will only grow modestly next year as central banks raise interest rates and Brazil remains in recession, according to a Reuters poll that portrays a region increasingly vulnerable to a recent slowdown in global growth.
Banks and research firms downgraded their regional growth forecasts for another quarter and raised estimates for inflation as currencies such as the Brazilian real BRL= and the Colombian peso COP= plunged to record lows.
Only Peru is now expected to expand faster than 3 percent in 2016 among Latin America's seven largest economies.
Latin America has been hit hard by plummeting prices of its commodity exports such as oil, iron ore and copper. The current slump is likely to extend for a few more months, with economic output probably bottoming out between the first and the second quarter of next year, the poll showed.
The timing of a recovery remains unclear, but economists say the path towards it will be bumpy and dependent upon unpopular leaders passing structural reforms to restore business confidence and boost productivity.
"For almost 10 years, Latin America's economies could pretty much sit back and enjoy the ride," said Marcelo Carvalho, head of Latin America economic research at BNP Paribas.
"Those days are over."
Indeed, policymakers have little maneuvering room to prop up their economies as inflation remains high. Central banks are set to raise interest rates, the poll showed, and analysts say the best they could do is to limit monetary tightening to a minimum.
"The past depreciation is putting pressure on both inflation and some measures of inflation expectations," Ilan Goldfajn, chief economist at Itau Unibanco, wrote in a note.
"However, because growth is weak, policymakers are also signaling that interest rates won't rise meaningfully."
The stakes are high for the region. Although full-blown currency crises are less likely in most countries due to their flexible exchange rate regimes, their credit stance could be at risk in coming years, potentially spooking much-needed foreign investors.
In a recent report, Standard & Poor's, which stripped Brazil of its investment-grade rating, listed four other South American countries - Venezuela, Argentina, Colombia and Peru - as being among the five most vulnerable emerging economies to what it called "adverse global trends."
Mexico, regarded as relatively open to trade and market-friendly, has fared better than its Southern counterparts Brazil, Argentina and Venezuela, where recession and inflation are household names.
None seems strong enough to pull the neighbors out of their slump, though.
With regional trade volumes falling, Latin America has pinned its hopes on markets further away through the Trans-Pacific trade talks and the potential deal between Brazil's and Argentina's Mercosur with the European Union, by no means an infallible strategy.
"Many emerging markets may be hoping to capitalize on their newly competitive currencies... but there has so far been little evidence that any major region has benefited from a weaker exchange rate for any significant period," HSBC economists Janet Henry and James Pomeroy wrote in a note.
Brazil's economy is set to shrink 2.8 percent in 2015 and 1.0 percent in 2016, according to the median forecasts in the survey. Latin America's largest economy has not experienced two years of back-to-back contraction since the 1930s.
Mexico's growth prospects were also downgraded to an increase of 2.3 percent in 2015 and 2.8 percent in 2016, down from 2.5 and 3.1 percent in a July poll.
High expectations over the opening of the country's oil sector have long been replaced by caution, although a recent oil auction suggested policymakers may have learned from past mistakes, Morgan Stanley economists said in a report.
The prospect of faster U.S. growth would also help Mexico, Latin America's country least exposed to China.
Argentina's economy is set to grow 0.5 percent this year and just 0.1 percent next year, following the October 25 presidential election in which government candidate Daniel Scioli is expected to win.
Although he will face market pressures from Argentina's shrinking reserves, Scioli is seen as likely to enjoy stronger Congress support than his main opponent, Mauricio Macri.
Colombia's economy is set to grow 2.8 percent both in 2015 and 2016. While an increasingly likely peace deal with the leftist FARC guerrillas could boost growth in the long term, it could drag on the country's budget in the short term at a time when revenue from its oil exports sinks.
Chile's GDP is expected to grow 2.2 percent in 2015 and 2.8 percent in 2016. With economic recovery turning out to be slower than expected, business confidence in the copper exporter has been in check, Nomura economist Mario Castro said.
Venezuela's economy is in a tailspin as oil prices plunge and pressures mount on Nicolas Maduro's leftist government. The country's GDP is expected to shrink 6.5 percent this year and 4.0 percent in 2016, with inflation far above 100 percent.
Lastly, despite the recent downgrade, Peru's economic outlook continued to outperform regional peers as mining output benefits from investments made over the past few years. Peru's growth is seen at 2.8 percent in 2015 and 3.6 percent in 2016.
Polling by Siddharth Iyer and Krishna Eluri in BENGALURU, Miguel Gutierrez in MEXICO CITY, Nelson Bocanegra in BOGOTA, Ursula Scollo in LIMA, Hernan Nessi in BUENOS AIRES, Corina Pons in CARACAS; Editing by Bernadette Baum