“Look ahead – and move on” – Latin America is returning to normality

In Latin America, infection rates remain high and the number of victims is not decreasing. An all-clear for the corona crisis is not in sight. But more and more states are nevertheless returning to normality. Financial investors appear to be banking on economic recovery.

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

 

“Look ahead – and move on” – that was what President Jair Bolsonaro recommended to his compatriots a week ago, when officially 100,000 Brazilians had died of Corona. In the meantime, experts expect the 150,000 dead limit to be reached at the end of September. But despite the tragedy, which is also a consequence of the government’s mismanagement, many Brazilians are now trying to do exactly what the president recommended them to do: to return to normality.

This process is taking place in most states in the region. According to a study by Oxford Economics, activity in Mexico and Brazil has recovered the most since the outbreak of the pandemic. In Brazil, economic activity is only 13 percent below pre-crisis levels, while in Mexico it is 17 percent. Peru has also recovered significantly, only 23 percent behind the March figure. In Chile, Argentina and Colombia, where governments continue to impose social isolation measures, activity is still around a third below pre-crisis levels, according to Oxford Economics.

In Brazil, several micro indicators point to a normalization that is taking place. For example, electricity consumption in August returned to the previous year’s level. Industrial capacities are being utilized at 80 percent of pre-crisis levels. Corporate inventories are being reduced faster than previously expected. In almost all sectors, confidence has increased significantly compared to June. The exception is the service sector, which is still suffering from closures.

The Brazilian financial markets are in a good mood: this year, the stock market is expected to see as many stock market launches (IPOs) as in the record year 2007, and there has been a strong increase in takeovers and mergers in the health, education and infrastructure sectors. Low interest rates make the stock market attractive for both private investors and companies to raise capital.

A positive factor for the current account balances throughout Latin America is that remittances from Latin Americans in the USA and Europe have fallen far less than previously feared. Experts at the Inter-American Dialogue expect remittances to fall by only about 7 percent this year. As recently as April, the World Bank had predicted a 20 percent decline for 2020.

The latest developments in debt rescheduling will also have a positive effect on risk assessments for the whole of Latin America: Argentina and Ecuador are on the way to reaching an agreement with their creditors.

COVID-19 in Latin America

Development of case numbers in the region


Currently reported cases in the countries

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