While Latin America continues to struggle with the outbreak of coronavirus, some economies in the region could see a “record-breaking contraction” not seen since World War II, according to investment bank Goldman Sachs.
Latin America and the Caribbean have become a new global epicenter of the pandemic, and the United Nations has warned that several countries in the region “are now the ones with the highest per capita infection rates worldwide.”
Countries such as Brazil, Mexico, Peru, Colombia and Chile are among the ten least affected, according to Johns Hopkins University data. More than 100,000 people have died from Covid-19 in Brazil alone.
“The outlook is pretty uninspiring,” Alberto Ramos, head of economic research in Latin America at Goldman Sachs, told CNBC’s Street Signs Asia on Wednesday.
“We expect to climb (out of) a very deep hole in the second half of the year and into the whole of 2021,” Ramos said, adding that some countries such as Argentina, Peru and Mexico are likely to see bilingual contracts grow. . He said others may experience less severe declines that “are still a record-breaking contraction – at least the least we’ve seen since World War II.”
The only silver lining is that inflation remains low in the region, which would allow most central banks in the region to maintain a relatively accommodative monetary policy stance for a longer period of time to support the economies, Ramos explained.
Mexico’s gross domestic product fell 17.3% in the second quarter over the past three months, Reuters reported in late July, citing preliminary data.
Emergency Rescue Service (SAMU) nurse Belisa Marcelino checks the lungs of Maria Geralda da Silva, 84, who is suffering from shortness of breath and other symptoms of coronavirus disease (COVID-19), as preparation is made to transfer the patient brought to a hospital amid the outbreak, in Sao Paulo, Brazil, July 2, 2020.
Amanda Perobelli | Reuters
Meanwhile, Argentina, the region’s third-largest economy, managed to reach a start with creditors to restructure $ 65 billion in sovereign debt in early August. For months, Argentina defaulted on billions of dollars in bonds as the economy was hammered by the pandemic.
Brazil, the least affected country in the region, has reported more than 3 million cases of Covid-19. It continues to struggle with lack of testing, ventilators, and beds for intensive care units in many regions, and insufficient data has made it difficult to understand how rapidly the virus is spreading. But economists appear to be relatively optimistic about the outlook for Brazil, according to a central bank survey, Reuters reported.
The International Monetary Fund downgraded its forecast for Latin America and the Caribbean in June. In a blog post, the IMF said that the region as a whole could shrink by 9.4% in 2020, four percentage points lower than its April projection. The IMF projected that the region will see a 3.7% growth recovery in 2021.
Ramos of Goldman Sachs said that although every country has been badly affected by the virus, the recovery will “be a function of how competent the authorities are or have been in managing the outbreaks.” The quality and intensity of the fiscal and monetary stimulus delivered by each country will also determine the strength of the recovery, he added.
The last time Latin America grew more than 2% was seven years ago, he added.
“Continuing the low-growth environment can be socially and politically destabilizing and also undermine the credibility of the institutions,” Ramos said. This means that countries may emerge poorer and more indebted from the pandemic, with higher inequality and potentially more social and political polarization.
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