Latin American Revenue May Experience 22 Percent Loss Due to Covid-19 Pandemic

RIO DE JANEIRO, BRAZIL – Being a relatively less affected continent by the coronavirus does not mean that the economic impact of the pandemic will not be severe – more so than has been projected so far.

Latin America, from Tijuana to Ushuaia, could suffer a contraction in revenue between 11 percent (in a “delimited” scenario, with eight-week confinements and more or less swift rebound in domestic demand) and 22 percent (under “prolonged confinement,” around 12 weeks, and greater stress in financial conditions) in the aggregate of 2020 and 2021, according to a simulation by the Bank of Spain based on its own data, the IMF, Consensus Forecasts and Thomson Reuters.

However, the figures are remarkably higher than projected so far by bodies such as the IMF itself and the World Bank, and are based on the GDP growth forecast for the region before the pandemic redefined the concept of “normality”, both in the human and economic aspects.

The subcontinent will close 2020, which is on course to become the worst year for the global economy in almost a century, with a 6.5 to 11.5 percent decline in GDP, the highest since the beginning of records, and which makes the 5.2 percent loss – projected by the IMF just two weeks ago – and the 4.6 percent projected by the World Bank – look optimistic.

These figures are now invalid, with a greater regression than expected for the global economy, “partly because the growth projection before the pandemic was lower in Latin American economies and partly because the internal demand contraction channel – the most significant – is more pronounced in these economies, as they are more closed to the exchange of goods and services than the world average”.

What remains unchanged is the guideline date on which the light at the end of the tunnel that was missing from any map will start to shine: in the “absence of new outbreaks of the epidemic later on,” the global (and, with it, Latin American) economy will begin to rebound in the second half of this year.

Still in a phase of health containment, with more or less strict confinements but active in virtually all the countries of the region, “the scope of disruption is still very uncertain,” note the Bank of Spain experts.

But we are beginning to see some traits that will affect Latin America (and the world) in the coming months: less international trade in commodities, upon which South America so heavily depends, in the eye of the hurricane; clearly downward tourism flows; tensions in financial markets under unprecedented pressure since the Great Recession of a decade ago; abrupt contraction in domestic demand, “which is reflected in lower household consumption and a decline in business investment,” and negative impacts on supply from the forced interruption of production in several sectors.

“Moreover, uncertainty over the outlook may reduce consumption and investment beyond the most immediate horizon, leading to the destruction of businesses and jobs, an increase in debt and a hardening of financing conditions for some agents, which may feed back a vicious circle and increase the endurance of the crisis”.

The coronavirus represents a multiple shock for the region: all sectors are affected, to a greater or lesser extent.

With a lower degree of economic openness (exports) than other regions, Latin American countries are, in general, less exposed to vicissitudes from abroad. However, the economies that are highly dependent on other countries (Mexico in relation to the United States; Chile, Peru, and Brazil in relation to China) are linked to an enormous degree, with production chains hindered in such times, in which many value chains have collapsed.

The negative evolution of commodities – among them oil, yes, but not only oil – from which Latin America exports more than it imports, and the price of which has plummeted since the outbreak of the pandemic, starting from levels already below their historical average, according to data compiled by the Bank of Spain, must also be considered. And tourism, an activity which has been struck below its fluctuation line by the coronavirus crisis, and which has a significantly higher relative importance on Latin American GDP than the other emerging economies.

The starting point also counts. “Latin America is emerging from a more delicate situation than the rest of the emerging and developed economies to face the pandemic,” stressed the Bank of Spain experts, who recalled that as early as the second half of 2019 two of the area’s three major powers (Mexico and Argentina) had reached the red mark, and that “growth in the region continued to be very sluggish as a result of low domestic demand”.

Since long before the health crisis, Latin America had been a low-growth island in an emerging sea that was also starting to show signs of depletion.

Source: El País

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error