Latin America may take more than five years to recover from pandemic, says IMF

The economy of Latin America and the Caribbean may take “more than five years” to regain pre-pandemic levels, which have substantially increased poverty and left an “increasingly precarious situation for the middle class,” said the International Monetary Fund (IMF).

The acting director of the IMF’s Western Hemisphere Department, Nigel Chalk, commented today on the regional outlook, which stood at 6.3% growth for this year and 3% for 2022.

“We think it will take a while, maybe not even within our five-year projection horizon, for the region’s Gross Domestic Product (GDP) to get back to where it was before the pandemic,” Chalk said.

At a press conference, he recommended that countries prepare “so that this recovery is not a linear path” and anticipate “a long and winding path.”

With the arrival of COVID-19Latin America saw its economic activity collapse last year with a contraction of 7%, much higher than the global average, which was a fall of 3.1%.

Probable social tensions

The official warned, in particular, of the substantial increase in poverty and “the increasingly precarious situation of the middle class” in the region as great burdens for economic progress.

For the agency, the main downside risks are the emergence of more “contagious and lethal” COVID-19 variants, the tightening of global financial conditions and “social unrest” as a year with a busy electoral calendar approaches.

Economic progress will largely depend on the rate of vaccination.

About 41% of the population is vaccinated in Latin America and the Caribbean, but with great disparities, since there are countries that have not yet immunized 20%, while others have more than 70% of their protected population, according to the Pan American Health Organization (PAHO).

One of the most affected sectors will be tourism, especially in the Caribbean, where the recovery will be very gradual and “it is likely that the number of visitors this year will only reach around 60% of pre-COVID-19 levels,” he said. Chalk.

Likewise, the IMF warned that the persistence of unemployment and the prolonged closure of schools due to the coronavirus pandemic have caused “significant damage to human capital”, which will imply an increase in social inequality.

Inflation on the rise

One of the great threats to the Latin American region is rising prices, linked to supply chain interruptions and global increases in the cost of goods, which drive up consumer prices.

“Inflation is definitely a problem in the region,” Chalk acknowledged.

According to the agency’s estimates, Latin America will have an inflation of 9.3% in 2021, which means that it will be the region with the highest price increase in the world, and in 2022 it will moderate slightly, to 7.8%, a figure still elevated.

Chalk stressed that to contain these forecasts, numerous central banks have begun to raise interest rates “correctly”, as is the case in Mexico, to highlight their “commitment” to the objectives set.

“These rate hikes are likely to continue in more countries in the coming months,” he stressed.

For this reason, he warned that if inflationary pressures continue, the authorities will have to “act more forcefully.”

“If there are signs that inflation expectations are less anchored, central banks will have to react quickly,” he concluded.

Starting in January, Brazilian economist Ilan Goldfajn will be the new head of the IMF’s Western Hemisphere Department, following the retirement of Alejandro Werner.