The agency forecasts that South America will contract -5.2%, in Central America the fall would be -2.3%, while the Caribbean would close the year with -2.5%
The coronavirus pandemic (COVID-19) impacts the economies of Latin America and the Caribbean through external and internal factors whose combined effect will lead to the worst contraction that the region has suffered since 1914 and 1930. According to the latest estimates, It forecasts an average regional contraction of -5.3% for 2020, ECLAC reported today during the launch of a new report.
The Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena, presented this Tuesday, April 21, the special report COVID-19 No. 2, entitled Dimensioning the effects of COVID-19 to think about the reactivation, on the monitoring of the economic and social effects of the current crisis derived from the impact of the coronavirus in the region (whose first delivery was made on April 3 last). In a virtual press conference broadcast live from the headquarters of the United Nations regional body in Santiago, Chile, Bárcena also announced new growth projections for each of the Commission’s member countries.
According to the report, since before the pandemic, Latin America and the Caribbean already accumulated almost seven years of low growth, with an average of 0.4% between 2014 and 2019. The crisis that the region is suffering this year 2020, with a drop of GDP of -5.3%, will be the worst in its entire history. To find a contraction of comparable magnitude, you need to go back to the Great Depression of 1930 (-5%) or even more to 1914 (-4.9%).
The document also states that the coronavirus crisis has been transmitted to Latin America and the Caribbean through five channels: a reduction in international trade, the fall in the prices of primary products, the intensification of risk aversion and worsening. of global financial conditions, a lower demand for tourist services and a reduction in remittances.
“The effects of COVID-19 will generate the largest recession the region has suffered since 1914 and 1930. A strong increase in unemployment is expected with negative effects on poverty and inequality,” said Alicia Bárcena in her presentation.
“The countries of the region have announced important measures, which must be reinforced by expanding the fiscal space. There is an urgent need to access financial resources based on flexible support from multilateral financial organizations, accompanied by low-cost credit lines, debt service reliefs and eventual cancellations. In addition, it is necessary to rethink the model of insertion of the region and the alternatives of reactivation in light of the structural changes that will occur in globalization and the post-COVID-19 world, “added the senior United Nations official.
In the detail of its projections, the agency predicts that South America will contract -5.2% due to the fact that several countries in this area will be greatly affected by the fall in activity in China, which is an important market for its exports. . Meanwhile, in Central America the drop would be -2.3%, affected by the drop in tourism and the reduction of activity in the United States, its main trading partner and source of remittances; while the Caribbean would contract by -2.5%, due to the reduction in the demand for tourist services.
The disruption of the value chains produced by the pandemic will have a greater impact on the Brazilian and Mexican economies, which have the largest manufacturing sectors in the region.
Meanwhile, the value of the region’s exports would drop about 15%. The greatest impacts would be in the countries of South America, which specialize in the export of primary goods and, therefore, are more vulnerable to the decrease in their prices. For its part, the value of exports from Central America, the Caribbean and Mexico will suffer the impact of the slowdown in the United States economy. Mexico will also be hit by the fall in the price of oil.
Projections also anticipate a significant deterioration in labor indicators in 2020. The unemployment rate would be around 11.5%, an increase of 3.4 percentage points from the 2019 level (8.1%). In this way, the number of unemployed in the region would reach 37.7 million. Likewise, the high participation of small and medium-sized enterprises (SMEs) in job creation (more than 50% of formal employment) increases the negative impacts, as this sector has been hard hit by the crisis, while gender inequality it will be accentuated with measures such as the closing of schools, social isolation and the increase of sick people, since it will increase the overload of unpaid work of women.
On the other hand, the drop of -5.3% of GDP and the increase in unemployment would have a direct negative effect on household income and their possibility of having sufficient resources to satisfy basic needs. In this context, the poverty rate in the region would increase by 4.4 percentage points during 2020, going from 30.3% to 34.7%, which means an increase of 29 million people living in poverty. For its part, extreme poverty would grow by 2.5 percentage points, going from 11.0% to 13.5%, which represents an increase of 16 million people.
“G-20 leaders must support multilateral organizations to lend at favorable interest rates and relieve debt from highly indebted countries by postponing or canceling it. Otherwise, payments will be impossible and the fiscal space will be compromised. Exceptional measures are required to deal with an unprecedented crisis. There will be no progress without international cooperation and solidarity, “stressed Alicia Bárcena.
The productive crisis will bring changes that will persist beyond the health pandemic, the report explains. Greater resilience in production networks will be needed by diversifying suppliers in terms of countries and companies, favoring locations closer to the final consumer markets (nearshoring) and relocating strategic production and technological processes (reshoring). Companies are already adapting their internal operations to social distancing measures, accelerating the trend towards automation and digitization, and there is an exacerbation in the fragility of multilateralism. ECLAC adds that globalization will not be reversed, but there will be a more regionalized world economy around three poles: Europe, North America and East Asia.
“You have to prepare for the post-COVID-19 world. We must think about the future of the region in the new economic geography due to the high dependence on imported manufactures, ”said Bárcena. “Industrial policies are required that allow the region to strengthen its productive capacities and generate new capacities in strategic sectors,” he added.
“In order to influence the new world economy, the region must move towards greater regional integration in both the productive, commercial and technological aspects. The coordination of our countries in macroeconomic and productive matters is crucial to negotiate the conditions of the new normality, particularly in an urgent dimension in the current crisis and in the medium term: that of financing for a new style of development with equality and environmental sustainability. “Emphasized the highest authority of ECLAC.