It’s the biggest recession in more than a century, but there are also some elements for hope. The collapse of the Latin American economy this year will be enormous, the second highest in the world only behind the euro zone, although also somewhat less than initially expected. He International Monetary Fund (IMF) has improved on Tuesday its forecast of a fall in GDP for 2020 —the 9.4% drop that it anticipated in June becomes an equally alarming but substantially lower: 8.1% – and remains practically stable —only one tenth less than expected— recovery in 2021: the rebound remains at 3.6%. The collapse caused by the coronavirus will be generalized throughout the region, but – always apart from Venezuela – Peru, Argentina and Ecuador will bear the brunt with respective declines of 13.9%, 11.8% and 11%. The position of the last two, immersed in individual bailouts from the IMF itself, is especially compromised.
The improving outlook, however, is widespread. In the largest Latin American economy, Brazil, the 9.1% drop that the agency projected for this year remains at 5.8%. In 2021, the rebound will be 2.8%, which implies that, with a bit of luck, the South American giant will recover the GDP level before the crisis throughout 2022 or, at most, in 2023. In the second largest in the area, Mexico, the improvement is minor but also significant: the projected 10.5% collapse in June now stands at 9%, and the recovery in 2021 remains at 3.5%, two tenths more than I anticipated so far. With these figures in hand, however, the North American country will be one of the largest countries that will take the longest to recover the ground lost during the pandemic.
The upward revision of the IMF’s outlook for the region occurs in parallel with a generalized improvement on a global scale: less than three months before the end of the year, the forecast for a collapse of world GDP remains at 4.4%, five tenths less than forecast in June. The rebound of the world economy in 2021, although down slightly (two tenths), remains clearly above 5%. If these projections are fulfilled, the world will return to the pre-covid-19 level before the end of next year. Something that, until now, was not so clear. Still, per capita income – an indicator that already takes population growth into account – will not return to pre-crisis levels until early 2022.
Worse are the figures for Latin America and the Caribbean. To recover the level of GDP prior to the recession, the bloc will have to wait for something more: at the earliest, until 2023, according to the latest World Bank projections that are endorsed by the new macroeconomic framework of the IMF. It will also continue to be the worst hit region in the emerging world, the extreme opposite to China: while the Asian colossus will close 2020 in green (+ 1.9%) and will grow by 8.2% in 2021, the average of the countries of Average income will fall 3.3% this year, less than half that of the Latin American bloc. Among the large emerging countries – with populations of 100 million people or more – Mexico and Brazil will be the second and third that fall the most, only surpassed by India (-10.3%).
The chief economist of the Fund, Gita Gopinath, this Tuesday put black on white a trend that was sensed since the beginning of the health crisis: the countries most dependent on services that require interaction between people and exporters of raw materials (and , especially oil) will be the hardest hit, while the most manufacturing will come out before the recession. With this pattern, Latin America has the potential to lose on several fronts: the Caribbean is one of the most touristic regions in the world, several countries in the area —especially in South America— depend on income from the export of basic products and practically none of its countries —except for Brazil and Mexico— have a mainstay of their economy in the industry. However, the worst numbers outlined back in June, when strict confinements were still the norm and no indicator was green, are gradually being left behind.