Latin America's economies are deteriorating faster than ever before and are heading for their worst post-World War II contraction, according to Goldman Sachs.
The New York-based bank reduced its regional growth forecast this year to a 3.8 percent decline from a 1.2 percent contraction just a week ago. That's even worse than the 2.1 percent drop during the global financial crisis in 2009 and the 2.4 percent drop during the Latin American debt crisis of 1983.
Policymakers are likely to respond by reducing borrowing costs to historical lows, Goldman economists led by Alberto Ramos wrote in a report. They expect Brazil's central bank to reduce rates to 3.0 percent, while authorities from Colombia to Peru and Mexico are doing the same with their own easing measures.
"The primary short-term goal is not fiscal orthodoxy, but preventing the collapse and deep freezing of economic activity," they wrote. "A sudden and deep contraction of activity could force out even financially sound and well-managed companies.”