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At the beginning of this month, the Ministry of Finance improved the 2020 GDP projection to -5.5% and the effective fiscal deficit to 8.2%. At that time, the head of the portfolio, Ignacio Briones, explained that both the recovery and a better price of copper will almost suddenly alleviate the public finances affected by the coronavirus pandemic.
But the good forecast of the head of the fiscal wallet seems like a bubble that the World Bank burst this Friday by strictly cutting its estimate for national GDP and anticipating, in its report “The cost of staying healthy”, that the contraction will be 6.3 %, that is, two percentage points more pessimistic than the fall contemplated in June.
The World Bank’s chief economist for Latin America, Martín Rama, explained that “Chile has faced a very high cost as it is a” very open, highly integrated “economy with a lot of” international contact. “Chile tried to open earlier, but it had a push that forced it to close again, “said the expert.
Not all those that lie ahead are cloudy days but we will have to wait. And is that for next year there is better news. The monetary entity foresees an increase in the country’s GDP of 4.2%, improving the forecast of 3.1% estimated four months ago. For 2022, meanwhile, it estimates a growth of 3.1%.
The review of the international entity, however, did not only affect the local economy. The World Bank also estimated that the Latin American economy will contract by 7.9% this year due to the impact of the coronavirus pandemic, especially due to a drop in external demand and the collapse of tourism, and by 2021 that a rise in promising 4%.
“The impact of COVID-19 has been felt through multiple channels, including external demand, increased economic uncertainty, the collapse of tourist flows, and the consequences of months locked in trying to contain the spread of the disease.” , detailed the World Bank.
By 2021, the multilateral institution expects that Latin American economic activity will grow by 4%, a promising percentage for the recovery of Latin America, which has been the region most affected by the health crisis in the world.
In its forecasts, the World Bank expects that the three largest economies in the region, Mexico, Brazil and Argentina, will also register significant decreases this year, of 10%, 5.4% and 12.3%, respectively.
These three nations will lead the regional recovery next year, according to estimates, as the Mexican economy is expected to grow by 3.7%, the Brazilian by 3% and the Argentine by 5.5%.
The economist Martín Rama pointed out on this last point that local governments “must protect the most vulnerable while adapting health and safety standards in all sectors and activities, especially education, so that the probability of contagion remains it goes down while life goes on. “
“Ensuring broad and affordable access to health care is critical to meeting this challenge,” he added.
Despite the direct impact of the pandemic, the World Bank argued that this crisis has come after years of slow economic growth and little progress in terms of social indicators, and immediately after a wave of social unrest in many countries in the region.
Furthermore, as in the case of Chile, the impact of the confinement measures fell disproportionately on households with informal jobs, which reaffirms the need for policies that aim to promote formalization, although without penalizing “the much-needed” job creation.
Despite the negative outlook, the World Bank stressed that “there are signs that the impact could be less severe than initially feared.”
Indeed, world trade in goods has returned to pre-crisis levels and commodity prices have held up relatively well, after registering a sharp initial decline.
The publication of the report “The cost of staying healthy” is prior to the start of the joint Annual Assembly of the International Monetary Fund and the World Bank, which will be held from October 12 to 18, this year completely virtual due to the impact of the pandemic .
Normally, the event of these multilateral organizations brings together every year the main world economic leaders and the ministers of Economy and governors of the Central Banks of the 189 member countries to analyze the global challenges.
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