Bleak outlook for economic growth in Latin America

Latin America will suffer economically due to the Corona crisis. However, this does not apply to all states: The Andean countries are better equipped for recovery than Mexico and Brazil, for example. The governments there are threatening to exacerbate the crises with their contradictory policies.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

 

In Latin America, the corona crisis is hitting an already economically depressed continent. The latest forecasts of the International Monetary Fund (IMF) and the World Bank, for example, are correspondingly negative: Latin America as a whole will lose around five percent of its economic power, i.e. shrink slightly more than the global economy as a whole.

The effects of the crisis vary: The three largest economies, Brazil, Mexico and Argentina will be hit harder by the recession and take longer to emerge from it. The Andean economies of Chile, Peru and Colombia, on the other hand, will suffer less from falling commodity prices, capital flight and rising unemployment. Their growth is also likely to recover more quickly in 2021 than in the major economies. Because of their smaller budget deficits, the Andean countries can implement more anti-cyclical measures. As suppliers to the Far East, they will also soon be able to benefit from China’s recovery.

The gloomy forecasts of the institutions from Washington and the investment banks for Brazil, Mexico and Argentina are due on the one hand to their already deficit-laden budgets and high debt levels. They will have to increase their debt levels even further in order to reduce the plight of their populations through social welfare payments. These rising debts will weigh on future growth prospects. Accordingly, the recovery for the three economies will be delayed. According to the World Bank, they will only grow between 1.5 and 2.5 percent next year.

Another negative effect is that the governments in Brazil and Mexico are slowing down and reacting contradictorily to the spread of the virus – especially now, when a transparent and clear policy is required, as demanded by the IMF. The investment bank Morgan Stanley considers the risk of political mistakes in the two largest economies to be high.

These are poor prospects for the whole of Latin America: Brazil and Mexico account for almost two thirds of the gross domestic product and, with some 335 million inhabitants, just over half of the population of Latin America. These are important locations for the German economy. While German industry in Brazil supplies the large local market, it uses Mexico primarily as an export platform – to the USA and worldwide.

COVID-19 in Latin America

Development of case numbers in the region


Currently reported cases in the countries

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