The cascade of downward revisions in economic growth predicted by the advance of the coronavirus pandemic takes chilling proportions. The latest body to join was, on Thursday, the Inter-American Development Bank (IDB), which forecasts a drop in GDP in Latin America and the Caribbean of between 1.8% and 5.5% this year. The revision of the base economic scenario does not stop there: the Washington-based organization predicts a total reduction of between six and 14 percentage points over the expansion initially planned until 2022. “The region will suffer a shock of historic proportions,” he underlines. its chief economist, Eric Parrado, who urges the countries of the region to “preserve the productive heart” with support for vulnerable groups that have lost their main sources of income and incentives and liquidity for companies to “increase the opportunities for recovery fast ”.
In their forecasts unveiled this Thursday, the IDB technicians contemplate four scenarios depending on the magnitude of the economic impact suffered by the region’s two largest trading partners (China and the United States) and the price earthquake on financial assets on a global scale. : moderate (with a fall in regional GDP of 1.8% this year and 6.3 percentage points over the base scenario for 2020, 2021 and 2022), strong (-3% and 9.6 points, respectively), severe (-3.9% and 12.3 points) and extreme (-5.5% and a whopping 14.4 points). In all cases, the Bank envisages that the fall in Chinese and US GDP will be limited to the first and second quarters of the current year, with a recovery in the final stretch of the year or early 2021.
The model starts from an estimate based on historical data – although the entity acknowledges that the economy is experiencing an “unprecedented” situation today – and two distinctive characteristics: that Latin America and the Caribbean “usually takes time to recover from strong shocks, although the rest of the world to recover relatively quickly “and that,” although there may be some rebound in China or in advanced economies and growth rates may exceed the previous trend for some quarters, this does not occur in any of the scenarios “in the case Latin American.
By subregions, the blow will be especially intense in the southern cone (excluding Brazil), where the collapse in the price of raw materials and the fall in the volumes to be exported will weigh heavily on its growth in the coming years. After him, Mexico will suffer for its close relationship with the United States – it is integrated into a number of value chains of the still world first power – and for the collapse of the oil market in recent times. Immediately afterwards, Brazil and the Andean region will suffer less bite, and Central America and the Caribbean (very little dependent on the sale of basic products) will have the main channels of contagion in the lowest flows of tourism and remittances. The IDB, however, adds that its analysis considers “only” external shocks and not supply shocks that may arise from confinement and company closings. “There will surely be additional repercussions,” he predicts.
In terms of economic policies, the Inter-American Bank advocates, in this first phase, prioritizing investment in health to avoid that the health systems “are overwhelmed” and “provide relief” to the most vulnerable households to social distancing measures. imposed in the region to try to stop the advance of the virus. Also support companies to “minimize the increase in unemployment” and “avoid the separation between companies and their employees and costly bankruptcies and liquidations”. All in all, the regional lender acknowledges that, fiscally, unlike advanced economies —which have interest rates at record lows and “can sustain their economies over a long period with very large programs and without significant threats to their stability economic “- the emerging bloc, to which Latin America belongs, is not in a” so privileged “position. In these circumstances, they add from the IDB, it is “extremely important” to prioritize the measures and ensure that they have the best performance. “In this new scenario, it is essential to improve the efficiency of spending, directing that spending more precisely to benefit the poor, informal workers and those in need during this crisis,” the agency’s economists settle.