COVID-19 to plunge LatAm into worst recession since Great Depression: IMF

2020-04-15 11:30

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by Luis Rojas

MEXICO CITY, April 14 (Xinhua) -- Latin America will suffer its worst economic contraction since the Great Depression this year due to the impact of the novel coronavirus pandemic and the collapse of raw material prices, the International Monetary Fund (IMF) and experts have warned.

Due to the effects of the coronavirus pandemic, the IMF forecast a 5.2-percent reduction in the gross domestic product (GDP) in Latin America and the Caribbean this year, a far cry from the 1.6-percent growth rate it anticipated in January for the region.

Many countries face crises on multiple fronts, from shock to healthcare to domestic economic upheaval, a drop in external demand, changes in the flow of capital and plunging raw material prices, said the IMF.

It is possible and even likely that countries will see even much worse growth figures, the organization said in its latest World Economic Outlook report released on Tuesday.

"As a result of the pandemic, the global economy is projected to contract sharply by -3 percent in 2020, much worse than during the 2008-2009 financial crisis," warned the IMF.

"The Great Lockdown" will lead to the worst recession since the Great Depression, it added.

The IMF report forecast a 6.6-percent drop in Mexico's GDP and a 5.3-percent drop in Brazil's, Latin America's two largest economies, with a recovery of 3 percent and 2.9 percent, respectively, in 2021, preliminary projections show.

Chile and Peru will see a 4.5-percent drop in GDP while Argentina, the region's third largest economy, will plummet 5.7 percent, shrinking for the third year in a row.

Alfredo Coutino of Moody's Analytics expects the region to see a 5.5-percent drop in growth, in part due to the impact of the coronavirus.

"The virus is spreading at an accelerated rate in Latin America, and I don't think we are going to see a peak (in the infection rate) for some time yet," Coutino told Xinhua.

"Several factors explain why some countries are more affected than others, including whether they have greater exposure to the economies of China or the United States, whether they tackled the pandemic correctly or whether they have a large number of people in the informal sector," he added.

According to Coutino, Mexico's economy will shrink 6.5 percent this year, Brazil's will contract 6 percent, and Chile's, 5.5 percent.

Among the five leading factors that will worsen the already "anaemic situation" in Latin America is the halt in tourism in countries such as Argentina, Brazil, Chile, Colombia, Mexico and Peru, he said.

The lower-than-expected exchanges with traditional trade partners like China and the United States will also take a toll on the Latin American economy as Mexico and Central America rely heavily on the U.S. economy for trade and remittances, while South America has close ties with China through investment and trade in raw materials, he noted.

The drop in the prices for certain raw materials on the international market will reduce revenues for some producer countries and even spark capital flight, cautioned the expert.

"I see that the recent drop in financial markets and aversion to risk are curbing the (cash flow) bonanza effect of companies and investors, affecting investment and decisions on consumption," said Coutino.

On the domestic side, the confinement of the working class will lead to an increase in unemployment and the bankruptcy of small businesses, said Coutino.

Pedro Tuesta, an economist at Continuum Economics, a London-based research firm, noted that the region has little fiscal wiggle room to deal with the pandemic, meaning that several countries may face a drop in their credit ratings.
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