COVID-19 to slam Latin American economies: ECLAC

Latin America and the Caribbean will see the worst economic contraction the region has ever undergone this year due to the novel coronavirus pandemic, a UN agency said Tuesday.

The Chile-based Economic Commission for Latin America and the Caribbean (ECLAC) warned in its latest report that the number of unemployed in the region will reach 37.7 million in 2020.

It said that according to the latest estimates, an average regional contraction of -5.3% is forecast for this year.

“To find a contraction of comparable magnitude, one must go back to the Great Depression of 1930 (-5%) or even further back to 1914 (-4.9%),” the report said.

According to ECLAC, before the emergence of the coronavirus, Latin America and the Caribbean had already accumulated nearly seven years of low growth, with an average of 0.4% between 2014 and 2019.

“The effects of COVID-19 will cause the biggest recession that the region has suffered since 1914 and 1930. A sharp increase in unemployment is forecast, with negative effects on poverty and inequality,” said ECLAC Executive Secretary Alicia Bárcena.

The document highlighted that the COVID-19 crisis has been transmitted to Latin America and the Caribbean through five channels: a reduction in international trade, a fall in commodities prices, increased risk aversion and a worsening of global financial conditions, lower demand for tourism services, and a reduction in remittances.

“The region’s countries have announced important measures, which must be reinforced by expanding fiscal space. It is urgent for them to access financial resources based on the flexible support of multilateral financing organizations, accompanied by low-cost credit lines, debt servicing relief, and possible debt forgiveness. In addition, the region’s integration model and alternatives for recovery must be rethought in light of the structural changes that will occur to globalization and the world post-COVID-19,” said Bárcena.

ECLAC projections highlight that South America will contract by -5.2% as several countries will be affected by the drop in activity in China, which is an important market for its exports.

Meanwhile, “the decline in Central America is estimated at -2.3%, affected by a drop in tourism and reduced economic activity in the United States, which is its main trading partner and source of remittances. Finally, the Caribbean is seen contracting by -2.5% due to reduced demand for tourism services,” the report said.

In addition, the interruption of value chains caused by the COVID-19 pandemic will have a greater impact on the economies of Brazil and Mexico, which have the largest manufacturing sectors in the region.

The value of the region's exports will fall around 15%, ECLAC said, adding the greatest impact will occur in South American countries that specialize in exporting commodities.

The projections also anticipate a significant deterioration in labor indicators in 2020. The unemployment rate will likely be around 11.5%, an increase of 3.4 percentage points compared to the 2019 level, which was 8.1%.

In this context, ECLAC’s report pointed out that “the poverty rate in the region is seen increasing by 4.4 percentage points in 2020, rising from 30.3% to 34.7%, which means that 29 million more people will find themselves in situations of poverty. Meanwhile, extreme poverty is seen rising by 2.5 percentage points, going from 11.0% to 13.5%, which represents an increase of 16 million people.”

“The leaders of the G20 should be in favor of multilateral organizations making loans at favorable interest rates and alleviating the debt of countries that are highly indebted, deferring it or forgiving it. If that does not occur, the payments will be impossible and fiscal space will be compromised. Exceptional measures are required to confront an unprecedented crisis. There will be no progress without international cooperation and solidarity,” Bárcena underscored.

*Juan Velez contributed to this report