The World Financial Discussion board Doesn’t Have An Optimistic Outlook For Latin American And Caribbean Economies

News Americas, NEW YORK, NY, Fri October 30, 2020: The COVID-19 crisis has hit the global economy hard, and Latin America and the Caribbean were no exception. The World Economic Forum, in collaboration with the International Monetary Fund, recently published a new report on the region’s economy and its likely response over the coming months. The outlook is not optimistic.

According to the report, Latin America’s GDP could fall by 8.1% by the end of 2020. This is mainly due to the fact that many employees in the area have jobs that require close face-to-face contact and the internet infrastructure does not allow remote work to be too convenient.

However, the blow isn’t even. When the five largest Latin American countries saw GDP decline of around 20% on average, Peruvian GDP fell by a whopping 40%, making recovery even more problematic. The IMF indicated that extensive measures would soon have to be taken; Otherwise a recession is imminent.

Latin America was one of the hardest hit regions by COVID-19

To understand the impact of COVID-19 on the local economy, we must first understand the extent of the health crisis. And unfortunately, Latin America was one of the regions hardest hit by the novel coronavirus. Although Latin America only accounts for 8.2% of the world’s population, it has 28% of the world’s cases and 34% of deaths. As of September 2020, Brazil alone had 4.5 confirmed cases, ranking third after the US and India. Mexico, Peru, Colombia and Argentina also had large outbreaks and were among the top 10 countries with the highest number of cases. In total, over 325,000 deaths have been reported across the region – one of the highest fatalities in the world after the United States.

Factors that exacerbated the economic impact of the pandemic

Latin America and the Caribbean aren’t the only regions of the word badly hit by the coronavirus, but they were one of the regions where the coronavirus had serious economic consequences. The report highlights that this was done for three structural reasons:

  1. In Latin America, most workers have jobs that require close personal contact. It is estimated that up to 45% of all jobs in the region are in sectors such as passenger transportation, retail and restaurants, where employees are unable to adequately follow social distancing guidelines. In other emerging economies the figure is only 30%.
  1. Latin America and the Caribbean have some of the lowest rates of teleworking in the world. Due to the poor internet infrastructure, only every fifth job can be carried out remotely. In comparison, the average in the rest of the developing world is 26%.
  1. The region is heavily dependent on tourism. Tourism accounts for 20-90% of the economies of Latin American countries, and even in countries that have managed to keep outbreaks under control, it has still been impossible to resume tourism.

In addition to these three factors, there is also the underlying problem of poverty that has plagued Latin America for a decade. According to the report “Social Panorama 2019 Latin America” published by the Economic Commission for Latin America and the Caribbean (ECLAC), 31.8% of the Latin American population lived in poverty and 11.5% in extreme poverty.

There were recoveries, but they were uneven

Economic activity began to resume in May, when most lockdown restrictions were lifted, and the countries that had managed to adapt to the new social distancing guidelines and get outside assistance were the quickest to show signs of recovery. Trading volume in Latin America began to grow again, particularly in Belize, a popular jurisdiction for brokers. In fact, all of Central America was particularly happy as it is a magnet for investors and traders.

Still, some countries had high rates of infection and death, and they had to return to the same restrictions in the summer. Then there was the impact of unemployment on the economy that should not be neglected. In spring 2020, the five Latin American countries hardest hit by the pandemic (Mexico, Chile, Peru, Colombia and Brazil) lost a total of 20 million jobs, and the laid-off workers were those whose situation was already problematic before the pandemic: workers with low Income, women and young people. As a result, the region will once again struggle against high levels of unemployment and inequality, and the recessions may even undo all the progress made over the past five years.

The World Economic Forum estimates GDP growth of 3.6% in 2021 and a return to pre-pandemic levels by 2023, but that’s the slowest compared to any other region. Ultimately, the recovery depends on how each Latin American country copes with the crisis and handles domestic demand. Given the slow recovery process, exports are likely to have the greatest success. Until a vaccine is made and the situation is kept under control, contact-intensive industries remain on hold, and until then some losses can be permanent if those industries are not given tax support. As for investments, they are still hit by weak demand, but the IT space looks positive as most countries accelerate digital transformation processes and attract foreign investors.

Where corporate balance sheets failed, banks succeeded. In fact, banking was one of the least affected sectors by the pandemic in Latin America, as most banks had large capital and liquidity buffers at the start of the crisis. Even if the situation worsens, it is highly unlikely that banks will be unable to meet their capital ratios. But that does not mean that all the dangers for the banks are over. When things return to normal they need to rebuild lost capital so that they don’t become unstable in the long run. Needless to say, governments will be under tremendous pressure to make policy changes, structural reforms and capital injections to get the region back on track. In just six months, the COVID-19 crisis exposed the region’s greatest vulnerabilities. Now is the time to speak to her and find a way to move forward.