Socio-economic consequences of the coronavirus could last for years in Latin American countries, indicates the IMF

The coronavirus pandemic is not over and even the World Health Organization (WHO) said it will “last a year longer than it should” if vaccines do not reach the poorest countries.

In this context, Latin America and the Caribbean, which suffer the negative effects of COVID-19 in both health and productivity, employment and human capital, could take “many years” to reverse this scenario, according to the International Monetary Fund (IMF) .

“We see that it will take some time, perhaps not even in our five-year forecast horizon, for the region’s GDP to return to its pre-crisis trend,” said Interim Director of the IMF’s Americas department, Nigel Chalk. , by revealing the economic outlook for the region.

For 2021, the IMF raised its growth forecast for Latin America and the Caribbean to 6.3%, 0.5 percentage points more than the estimate in July. But for 2022 it revised its projection downwards, to 3% (-0.2 points).

This year’s sustained rebound has not been enough to erase the region’s historic 2020 recession, which led to a 7% contraction in GDP, well above the -3.1% globally.

And before the pandemic, the growth of Latin America and the Caribbean had already been branded as “anemic”, with a GDP expansion of just 0.1% in 2019 and 1.2% in 2018.

“Countries must prepare so that this recovery is not a linear path. Instead, they must anticipate a long and winding road, ”Chalk noted.

The current panorama includes an uneven rebound in employment, with a greater impact on young people, the less educated and women; uncertainties about productivity; and “significant damage” to human capital from prolonged school closings, according to the report.

“Challenges” also persist in the tourism sector, especially in the Caribbean, where “the number of visitors this year is likely to only reach around 60% of pre-COVID-19 levels.”

For Chalk, this does not “necessarily” imply stagnation, but he highlighted the “very strong” impact of the pandemic in the region, with “substantial increases” in poverty, the middle class “in an increasingly precarious situation” and “ many social tensions ”.

“I don’t think the economy is predetermined to do badly, but it will take some policy efforts to reverse the damage caused by COVID-19,” he said.

The IMF also warned about the impact in the region of the increase in the prices of raw materials and food, the interruptions of the supply chain and the global increases in the prices of goods, which drive up consumer prices.

“Inflation is definitely a concern in the region,” Chalk warned.

However, he said that the institutional context is “very different” than in previous inflationary cycles, with many central banks reacting “correctly” to these pressures with increases in interest rates and commitments to inflation targets.

Chalk predicted that these increases “will continue in many countries in the coming months.”

For Latin America and the Caribbean, the IMF estimated an inflation of 9.7% for 2021 and 6.9% for 2022. In South America the projection is particularly high in relation to the rest of the region, of 12% for 2021 and 8, 9% by 2022, this does not include data on Argentina.

In this context, the IMF recommended implementing “ambitious policies”, improving the efficiency of public spending, promoting “a progressive and growth-friendly tax system”, or even investing more in projects to combat global warming.

He also advised prudence when withdrawing extraordinary public aid to counteract the impact of the pandemic on homes and businesses, and recommended “putting debt back on a downward path.”

Vulnerability to climate change

In a separate report, also released Thursday, the IMF noted that Latin America and the Caribbean is one of the most diverse regions in terms of climate-related risks.

Worldwide, it produces greenhouse gas emissions proportional to its economic size and population, which represent 8.4% of global emissions for a weight of 8% of world GDP.

But the volumes are very dissimilar, with Brazil, Mexico and Argentina as the largest emitters and the Caribbean economies with a marginal participation.

Although Latin American and Caribbean countries as a whole are less vulnerable to climate change, “there are pockets of great vulnerability.”

In the Caribbean, damage caused by natural disasters represents 2.5% of annual GDP, “affecting large segments of the economy and the population,” which weighs heavily on public finances. (I)