As Latin America continues to fight the coronavirus outbreak, some economies in the region may experience a “record contraction” not seen since World War II, according to investment bank Goldman Sachs.
Latin America and the Caribbean have become the new global epicenter of the pandemic, and the United Nations has warned many countries in the region that they are “now among those with the highest per capita infection rates in the world.”
Countries like Brazil, Mexico, Peru, Colombia and Chile are among the ten worst affected, according to data from Johns Hopkins University. More than 100,000 people have died from Covid-19 in Brazil alone.
“The forecast is very uninspiring,” Alberto Ramos, head of Latin America’s economic research at Goldman Sachs, told CNBC’s “Street Signs Asia” on Wednesday.
“We expect (to exit) from a very deep hole during the second half of the year and throughout 2021,” Ramos said, adding that some countries such as Argentina, Peru and Mexico are likely to experience a double-digit contraction in growth. . Others could suffer less severe drops, he said, “still shrinking the record – at least the worst we’ve seen since World War II.”
Ramos explained that the only bright side is that inflation is still low in the region, which will allow most central banks in the region to maintain an accommodative monetary policy stance for an extended period of time to support the economies.
Reuters reported in late July, citing preliminary data, that Mexico’s gross domestic product fell 17.3% in the second quarter from the previous three months.
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SAMU Emergency Rescue Service (SAMU) nurse Bellisa Marcelino checks the lungs of Maria Giralda da Silva, 84, who has difficulty breathing and other symptoms of Coronavirus disease (COVID-19), as preparations are made to transport the patient to hospital amid the outbreak, In Sao Paulo, Brazil, July 2, 2020.
Amanda Berubelli | Reuters
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Meanwhile, Argentina, the region’s third-largest economy, managed to reach an agreement with creditors to restructure $ 65 billion in sovereign debt in early August. For months, Argentina left billions of dollars in bonds in default as its economy was hit by the pandemic.
Brazil, the hardest-hit country in the region, has reported more than 3 million cases of Covid-19. Tests, ventilators and ICU beds are still lacking in many areas, and insufficient data has made it difficult to understand how quickly the virus has spread. But economists appear relatively more optimistic about Brazil’s future, according to a central bank survey, Reuters reported.
The International Monetary Fund cut its forecast for Latin America and the Caribbean in June. In a blog, the International Monetary Fund said the region as a whole could contract 9.4% in 2020, four percentage points short of April’s forecast. The International Monetary Fund has projected that the region will experience a 3.7% recovery in 2021.
Ramos of Goldman Sachs said that while every country has been hit hard by the virus, the recovery will be “a result of how efficient the authorities are or have been in managing outbreaks.” He added that the quality and intensity of fiscal and monetary incentives provided by each country will also determine the strength of the recovery.
He added that the last time Latin America grew by more than 2% was seven years ago.
“A continued low growth environment could destabilize social and political stability and undermine the credibility of institutions,” Ramos said. This means that countries may emerge from the epidemic and become poorer and have more debt, with higher levels of inequality and the potential for increased social and political polarization.
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