Covid impact on Latam
Economists from trade credit insurer Atradius (www.atradius.co.uk) is reporting that Latin America and the Caribbean (Latam) has been the most affected emerging market in the Covid-19 pandemic.
In its latest Economic Outlook report (https://atradius.co.uk/reports/economic-research-latin-america-one-of-the-worst-affected-by-covid19.html) on the region, Atradius reports structural weaknesses across Latam have made the region economically vulnerable to the Covid-19 containment measures, including border controls, travel bans, lockdowns and social distancing. Atradius economists warn decreases in global demand for goods and services, lower commodity prices and limited access to finance have compounded the pressure on the region, creating a devastating impact.
As a result, Atradius reports Latam is forecast to have contracted 7.7% in 2020 after a period of sluggish or no growth; significantly higher than the forecast overall 2.3% contraction across the Emerging Market Economies (EME). Of all Latam economies, Guyana is the only one showing growth in the year, following the start of oil production from recently discovered fields. In 2021, Atradius forecasts a subsequent recovery of 4.6%, albeit this is still below the forecast 6.2% growth for the EME overall.
According to the report, the global collapse in tourism dealt a severe blow to the small island economies of the Caribbean which are among the most dependent in the world on tourism. Atradius reports that economic contractions for these countries range from a forecast 14% in St Lucia in 2020 to a record 37% in Aruba. One exception is Jamaica, thanks to an increase in remittances and recovery of the mining industry, cushioning the blow and with a forecast contraction of 6.3% in 2020. However, until vaccines are more widely available, the tourism sector will remain depressed.
A recovery in commodity prices since the onset of the pandemic, including base metals and agricultural produce, is welcome news to Latam economies which follows a rebound in global trade in goods, led by China. This is of particular importance to South America as home to major producers of copper (Chile and Peru), soybeans (Brazil and Argentina), iron ore (Brazil) and bananas (Ecuador). However, Atradius warns that future developments in commodity prices are expected to be less supportive than in the past months.
“Looking forward, we are expecting Latam’s economic recovery to be partial and uneven,” comments Darren Power, Northern Regional Manager for Atradius UK. “Critically, the future outlook strongly depends on both global and national infection rates and the rollout of a vaccine. The economic benefit from vaccine deployment will most likely manifest first through an improving external environment as Latam’s vaccine orders have been small so far compared to advanced markets. Over the long term, glimmers of hope come from an expected improvement in US relations under a Biden presidency and the development of two free-trade agreements that Chile has secured with Brazil and Ecuador; demonstrating a continued effort by some of the region’s largest markets on delivering sustainable economic benefits despite the challenges brought by the pandemic.”