Most countries in Latin America will be unable to return to their pre-pandemic growth levels until 2023, with the virus leaving deep scars on the hardest-hit region of the world, according to the International Monetary Fund.
Per capita income won’t recover until 2025, later than anywhere else, IMF western hemisphere director Alejandro Werner, assistant director Jorge Roldos, and economist Samuel Pienknagura wrote in a blog post on Thursday.
The Fund forecasts an 8.1 percent decline in real gross domestic product this year, nearly matching the contraction in the euro area. With only 8.2 percent of the global population, Latin America accounted for 28 percent of Covid-19 cases and 34 percent of deaths by the end of last month, the IMF said.
“While some structural reforms may support confidence and the recovery, especially if they manage to lay the foundations for more sustainable and inclusive growth going forward, the legacies of the pandemic cloud an already uncertain outlook for the region,” the Fund said.
Two factors made Latin America particularly vulnerable to Covid-19, according to the IMF: the region has relatively more people working in activities that require physical closeness, and conversely fewer people have jobs that can be done remotely.
Almost 45 percent of jobs in Latin America are in contact-intensive industries like restaurants, retail or public transportation, compared with about 30 percent on average in emerging markets. Only about 20 percent of jobs can be done remotely, half the share of advanced economies and less than the 26% emerging-market average, according to the IMF. The Fund projects poverty to increase significantly, worsening income inequality already among the world’s highest.
Latin America has received significant IMF support in recent years. Argentina is set to start talks on a new funding programme after a record US$56-billion package failed to lift South America’s second-largest economy out of recession, and last month the fund approved a new US$6.5-billion package for Ecuador. This year Chile and Peru joined Mexico and Colombia in securing precautionary IMF flexible credit lines worth US$117 billion combined.
by Eric Martin, Bloomberg