The Economic Commission for Latin America and the Caribbean (ECLAC) has released new economic growth projections predicting the worst contraction that the region has ever experienced, exceeding levels seen in 1914 and 1930.
According to the estimates, gross domestic product in Latin America and the Caribbean will decline 5.3% in 2020.
The executive secretary of the commission, Alicia Bárcena, presented the results together with a COVID-19 special report on Tuesday, 21 April, at ECLAC’s headquarters in Santiago, Chile.
The report tracks the economic and social effects of the impact that the coronavirus crisis has had on the region, and highlights that even before the pandemic hit, Latin America and the Caribbean had accumulated almost seven years of low growth, averaging only 0.4% between 2014 and 2019.
ECLAC points to five transmission channels for the crisis: a reduction in international trade, a fall in commodities prices, the intensification of risk aversion and worsening of global financial conditions, lower demand for tourism services, and a reduction in remittances.
“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,” Bárcena said during her presentation.
The Great Depression of 1930 saw a decline of 5% following the previous record contraction of 4.9% in 1914.
Bárcena said the region’s countries had 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 organisations, 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 globalisation and the world post-COVID-19,” she said.
While the decrease in tourism will trigger a 2.5% output drop in the Caribbean, the South American economy is expected to contract by 5.2%. Central America and, particularly, Mexico will experience a decline of 5.5% this year, ECLAC said.
The disruption of supply chains caused by the pandemic will have greater impact on the Brazilian and Mexican economies, which have the region’s biggest manufacturing sectors.
The value of the region’s exports is expected to drop by 15%.
The biggest impact will be seen in South American countries that specialise in exporting commodities and are therefore more vulnerable to a fall in prices. At the same time, the value of exports from Central America, the Caribbean and Mexico will suffer the impact of a deceleration in the US economy.
Related to the economic crisis, ECLAC forecasts a deterioration of labour and social indicators. The economic commission expects the unemployment rate to reach 11.5%, an increase of 3.4 percentage points over 2019 (8.1%). Correspondingly, the poverty rate in the region will jump by 4.4 percentage points in 2020, rising from 30.3% to 34.7%. This means that 29 million more people will fall into poverty. Extreme poverty could rise by 2.5 percentage points, from 11.0% to 13.5%, or by 16 million people, the United Nations organisation said.
“The leaders of the G20 should be in favour of multilateral organisations making loans at favourable interest rates and alleviating the debt of countries that are highly indebted, deferring it or forgiving it,” Bárcena said. “If that does not occur, the payments will be impossible and fiscal space will be compromised,” she warned.
Exceptional measures were required to confront an unprecedented crisis and there would be no progress without international cooperation and solidarity, Bárcena added.
According to the report, the crisis in production has pointed to many areas in the economy that will change in the future. Production networks will have to become more resilient, there must be greater diversification of suppliers in terms of countries and companies.
Locations that are closer to final consumption markets will be preferred, requiring the relocation of strategic production-related and technological processes, the ECLAC report said.