IMF: Latin America and the Caribbean recovering from COVID-19
- Latin America and the Caribbean’s economic contraction in 2020 was the strongest in the world, falling 7%.
- The region has started to recover since then, but recovery is still uncertain and relies heavily on access to a COVID-19 vaccine.
- The long-term effects of the coronavirus are still largely unknown, areas unable to support extracurricular learning are expected to be negatively affected.
Growth in Latin America and the Caribbean recovered rapidly in the second half of 2020, but still more slowly than the global economy and other emerging markets. And this despite unprecedented political support, strong performance from trading partners, soaring commodity prices and accommodating global financial conditions. The persistence of the health crisis in many countries cast a shadow over the short-term outlook. People and economies continue to need a short-term boost to emerge from the COVID-19 crisis, while the worsening of several underlying structural weaknesses pose significant long-term challenges.
The region’s 7% contraction in 2020 was the largest in the world.
– Alejandro Werner, Takuji Komatsuzaki and Carlo Pizzinelli
The region’s 7% contraction in 2020 was the largest in the world, far outpacing the global slowdown of 3.3%. Growth for 2021 is projected at 4.6%, lower than the 5.8% estimated for emerging markets excluding China. Per capita income will not catch up to its pre-pandemic level until 2024, resulting in a cumulative loss of 30% from the pre-pandemic trend.
Slow and divergent recovery
The outlook, however, is subject to an extraordinary degree of uncertainty as the race between vaccines and virus continues. On the bright side, faster control of the pandemic globally as well as stronger domestic political support than expected would boost growth. Rapid vaccination and strong political support give Chile a boost in the short term. The country is already expected to rebound this year to its pre-pandemic GDP level.
In contrast, the recent resurgence of the virus in Brazil, Chile, Paraguay, Peru and Uruguay, combined with the slow deployment of vaccines (with the exception of a few countries such as Chile and Uruguay) has thrown a shadow over the short-term outlook — although the new closures are likely to be less damaging than at the start of the pandemic, as economies have learned to adapt. Brazil is expected to recover by 2022 due to the withdrawal of fiscal and monetary policy support and the slow rollout of vaccines. Mexico will only return to its pre-pandemic GDP level by 2023, despite the impetus of the U.S. broad fiscal policy plan, due to the lack of significant domestic budget support and the expected persistent weakness in investment. The US bailout will boost growth in some Central American countries through trade and remittances, helping those countries rebound by 2022. Tourism-dependent Caribbean economies will be the last to recover (only in 2024 ) due to the slow recovery in tourism.
The increase in long-term yields in the United States so far has had a somewhat moderate impact on asset prices and capital flows in the region. But a continuous rise in long-term interest rates is a risk.
The recovery has also been heterogeneous within countries. Manufacturing has rebounded faster than contact-intensive services, aided by exports in some cases, notably in Mexico. However, labor markets remain fragile: only two-thirds of those who lost their jobs at the start of the pandemic in Brazil, Chile, Colombia, Mexico and Peru found jobs at the end of the year. last. The informal sector, which initially suffered the most losses, was the engine of the employment recovery.
Average labor income has fallen since the start of the pandemic, with stark divergences in labor market outcomes across countries, sectors and demographic groups. Countries that have implemented job retention programs (eg Brazil) have experienced less dramatic declines in employment, but the recovery has also been slower. However, even in the case of a relatively rapid recovery in Mexico, those who were re-employed suffered greater income losses than those whose employment remained uninterrupted during the crisis. Women and poorly educated workers struggled the most. Low-skilled women workers, in particular, lost more jobs or had to reduce their working hours even when they were able to keep their jobs, suffering the biggest losses in earnings.
Poverty is estimated to have increased by 19 million people and inequalities, measured by the Gini coefficient, have increased by 5% from pre-crisis levels. The pandemic will also leave lasting damage to human capital due to school closures, which have lasted longer than in other regions.
Although precise learning losses are difficult to estimate, staff analysis suggests that students aged 10-19 could expect an average 4% lower income over their lifetime if students school days lost in 2020 are not compensated.
Income losses differ from country to country, depending on the extent to which the pandemic is reducing the chances of completing secondary education and the importance of the skills premium for higher education. The losses will be greater for students whose families are less able to support out-of-school learning, exacerbating already high income inequalities and low levels of education.
The most urgent task remains to control the pandemic, ensuring that health systems are adequately resourced and that everyone can be vaccinated. Fiscal and monetary policies should remain favorable in countries where there is sufficient room for maneuver – a short-term chance for their economies – while countries with tight budgets should re-prioritize spending on health and household support, and strive to create additional fiscal space. Given the heavy toll that continues to fall on low-income workers, targeted support to facilitate job creation and retraining may be warranted.
One year later: We look back at how the Forum’s networks have navigated the global response to COVID-19.
Using a multi-stakeholder approach, the Forum and its partners, through its COVID Action Platform, have provided countless solutions to navigate the COVID-19 pandemic around the world, protecting lives and the means of subsistence.
Throughout 2020, alongside the launch of its COVID Action Platform, the Forum and its partners have launched more than 40 initiatives in response to the pandemic.
The work continues. For example, the COVID Response Alliance for Social Entrepreneurs supports 90,000 social entrepreneurs, impacting 1.4 billion people, working to meet the needs of excluded, marginalized and vulnerable groups in more than 190 countries.
Learn more about the COVID-19 Tool Accelerator, our support for GAVI, the Vaccine Alliance, the Coalition for Epidemics Preparedness and Innovations (CEPI), and the COVAX initiative and innovative approaches to resolve the pandemic, such as our Common Trust Network – aiming to help deploy a ‘digital passport’ in our impact story.
Healing scars in the long term will be more difficult and will require accelerating structural reforms, expanding access to high-quality education and health, expanding social safety nets and improving the climate. Business. A deeper structural transformation that could be facilitated by a broad fiscal pact is needed to reverse years of slow growth.