ECLAC forecasts a 5.3% decline in the Latin American economy

Latin America will experience the worst recession in its history in 2020

photo_camera AFP/JOSÉ SÁNCHEZ - Sale of sanitary products in Guayaquil (Ecuador), one of the cities most affected by the COVID-19 in Latin America

New clouds, very dark this time, are looming over the Latin American economy. In 2020, the sub-continent will experience the worst recession in its history, with an average regional contraction of 5.3%, according to a report by ECLAC, the economic arm of the United Nations for the development of Latin America and the Caribbean, which was presented Tuesday in a vodeclaration. The economies of all countries will go into the red, except for the Dominican Republic, which will stagnate. Such negative figures have not been reached since the beginning of the 20th century; one has to go back to 1914 (-4.9%) or 1930 (-5%) to find similar figures.   

The paper states that the coronavirus crisis will affect Latin America and the Caribbean through five main channels: reduced international trade, lower commodity prices, increased risk aversion and deteriorating global financial conditions, reduced demand for tourism services and reduced remittances. Prior to the pandemic, the region had already accumulated nearly seven years of weak growth following the last global crisis in 2008

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"China will be the only country not to record negative growth this year, but the United States and the euro area, our main partners, will suffer a severe recession," said Alicia Bárcena, the agency's Executive Secretary, when presenting the paper. The 13 to 32% drop in world trade, according to data processed by the WTO (World Trade Organisation), is also a very negative factor for the region, which is highly dependent on exports of raw materials. Latin America is facing the greatest recession in its history, at a time when the region is experiencing great macroeconomic weakness. "We have high levels of public debt, monetary and fiscal policy has little room for manoeuvre after the 2008 crisis, and tax revenues are insufficient," said the ECLAC Secretary General during the presentation of the report.   
  
Latin America has a public debt of 44.8% of GDP and the Caribbean of 68.5%. "This is too much, even though countries have made significant efforts in recent years to reduce it," said Mr Bárcena. The consequence of this high debt is that countries have to pay very high interest rates to access financing on the markets, up to 2.6% of GDP, which is higher than what is invested annually in health (2.3% of GDP on average).   
  
Falling prices for primary commodities, reduced international trade, a severe blow to tourism and declining remittances are other vulnerabilities for the region. "Mexico, Uruguay, Panama and Central America will be the regions most affected by the fall in tourism," said Mr Bárcena. ECLAC estimates that the drop in exports could reach 15% and unemployment, currently at 8.1%, will soar to 11.5%. The agency estimates that the coronavirus crisis will lead to poverty, i.e. an income of less than three dollars a day, for 30 million people

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The Executive Secretary of ECLAC explained that many Latin American countries will have to resort to external funding to deal with the coronavirus pandemic. "Countries are going to need more financial support. A suspension of debt servicing and even debt forgiveness would be desirable," said Bárcena, referring to the debt forgiveness announced by the G20 for the world's poorest nations.   
  
"The coronavirus crisis is forcing us to rethink globalisation. Value chains have become very fragmented and imports have to make increasingly long journeys from factory to consumer," said Mr Bárcena. The coronavirus was concentrated in developed countries and then spread to the rest of the world, according to the ECLAC Secretary General. "The shutdown of Chinese factories has caused shortages in other parts of the world," Bárcena said. 
  
The Executive Secretary of ECLAC said that during this crisis, Latin American governments and central banks are beginning to cooperate more to finance recovery plans for families and businesses. "Cooperation is the only way forward in this situation," explained Mr Bárcena.   
  
The Executive Secretary warned that the world economy will not return to "normal" after the end of the pandemic. "We need to diversify suppliers, giving priority to producers that are close to us," she said. Bárcena predicted that globalisation will not disappear, but that it will be a major challenge for the world economy.

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