Latin America: Out of the frying pan into the fire?

Latin America is beginning to relax its social isolation, despite a further increase in the number of infections. For the economy, this means that the continent will remain in recession longer and more severely than the rest of the global economy. But there are also rays of hope.

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

 

The investment bank JP Morgan has just published its Latin America Mid-Year Outlook for this year with the title that speaks for itself: “Out of the frying pan into the fire”. At the moment, it looks as if the economic crisis in Latin America will be more severe than in the rest of the world – and the region will take even longer to recover from the slump. After the end of the commodity cycle, Latin America has been trying to get back on track for growth for the last five years, more or less unsuccessfully, and the corona crisis was added to the mix. ” The impact of COVID-19 in this context is not just another speed bump,” writes JP Morgan, “it’s more like the car has driven off a ledge.”

Gross domestic product in Latin America will shrink by 8.4 percent this year. For 2021, the investment bank expects a statistical rather than real economic recovery and growth of 4.5 percent. Nevertheless, regional gross domestic product will not return to pre-pandemic levels before 2022. The recession will hit Peru (-12.7 percent) and Mexico (-10.5 percent) hardest. Chile (-5.2 percent) and Colombia (-6.5 percent) will suffer the smallest losses.

The reason for the gloomy outlook is similar in all countries: countries are beginning to relax social isolation regulations, although infection rates are still rising. Although infection rates are significantly lower than in many European countries, this is partly due to the lack of testing. There is also a risk that governments will lose control over the spread of the disease. Moreover, the scope for government spending programmes is limited. States will have to start saving again as early as 2021 in order not to overstretch their national budgets.

A potentially positive shock for Latin America could mean a rapid recovery in China, with growing demand and rising prices for commodities from the region.

COVID-19 in Latin America

Development of case numbers in the region


Currently reported cases in the countries

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