Coronavirus
LAC | Dec 22, 2020

Latin America, Caribbean hardest hit by COVID-19 in emerging world

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A SeaDream Yacht Club’s SeaDream 1 is seen at the port in Barbados, after a number of passengers on the cruise were tested positive for the coronavirus disease (COVID-19), in Barbados, November 7, 2020. GENE SLOAN / THE POINTS GUY/Handout via REUTERS

The Economic Commission for Latin America and the Caribbean (ECLAC) has assessed that Latin America and the Caribbean (LAC) was the hardest hit region of the emerging world by the global pandemic.

In it’s just released 2020 report, ECLAC declared that the LAC states were hardest in the areas of health, social and inequality indicators. This was compounded by the region’s historical structural weaknesses and gaps, its limited fiscal space and more limited social protection coverage and access.

ECLAC contends that areas such as “high labour informality, uneven production structure and low productivity are key to understanding the magnitude of the pandemic’s effects on its (LAC) economies, as well as the difficulties in implementing policies to offset those effects and the challenges of generating a sustainable and inclusive economic recovery.”

In its assessment of COVID-19 on LAC economies, ECLAC argues that, “the region went into the pandemic having already racked up a six-year run of weak growth of minus 0.3 per cent on average over 2014–2019 and just 0.1 per cent in the last of those years. With the outbreak of the pandemic, on top of this slack economic growth, came negative external shocks and the need to implement lockdown and physical distancing policies and to shut down production activities.”

Worst economic, social and production crisis experienced in 120 years

The organisation emphasised that these challenges “turned the health crisis into the worst economic, social and production crisis the region has experienced in 120 years, with a 7.7 per cent contraction in regional GDP. That contraction in economic activity is bringing large rises in the unemployment rate, which is projected around 10.7 per cent, a heavy fall in labour market participation and considerable increases in poverty and inequality”.

Brazilians traverse a popular shopping street amid the coronavirus disease (COVID-19) outbreak in Sao Paulo. (Photo: REUTERS/Amanda Perobelli)

At the global level, despite a slight upward revision of the mid-year projections, in 2020 the global economy is expected to contract by 4.4 per cent, with recession widespread across all countries and regions. The latest out-turn for the world economy, ECLAC states, partly reflects a better-than-expected second quarter in some of the major economies thanks to large fiscal packages, and the upturn underpinned by reopenings in the third quarter.

For the group of developed economies, the contraction in 2020 is projected at 5.8 per cent. In the case of the United States, despite the rise in infections and the acceleration of the pandemic, the strong growth posted in the third quarter has continued into the fourth.

As such the contraction of that country’s economy is forecast at 4.1 per cednt in 2020. In the Eurozone, ECLAC pointed out that after opening and signs of economic recovery during the northern hemisphere summer, the numbers of COVID-19 cases began to rise again in late October in many countries, including Germany, France and Italy, leading to new lockdowns.

GDP in Germany, France and Italy likely to fall

This will cause GDP to fall in the fourth quarter and end 2020 overall with an eight per cent estimated contraction. A downturn of 3.3 per cent is expected for the group of emerging and developing economies, China being the only main developing economy to post positive growth of 1.9 per cent.

FILE PHOTO: A healthcare worker draws the coronavirus disease (COVID-19) vaccine from a vial at Martin Luther King Jr. Community Hospital, in South Los Angeles, California, U.S., December 17, 2020. Projected growth for emerging economies next year will be dependent on whether vaccine distribution and administration keeps the pace expected. (File Photo: REUTERS/Lucy Nicholson)

Next year, ECLAC projects that the world economy will grow by 5.2 per cent. “However, this projection is subject to revision if, among other factors, the distribution and administration of COVID-19 vaccines is slower than expected, especially in the emerging economies. For the developed economies, growth of 3.9 per cent is expected in 2021, meaning that, on average, the recovery in these economies is not expected to bring a return to pre-crisis GDP levels,” ECLAC pointed out.

The United States economy is expected to post economic growth of 3.6 per cent and the Eurozone with 5.1 per cent growth in 2021. For emerging and developing economies, growth of six per cent is projected in 2021, led mainly by China, which is set to growth by 8.1. This growth will be driven by a strong real estate sector, buoyed by fiscal spending on investment and infrastructure.

From the second quarter onward, a recovery in the external sector is projected.

Volume of trade fell in the first nine months of 2020

In the first nine months of 2020, the volume of trade fell 7.2 per cent year-on-year, with a recovery from June onward. The ECLAC 2020 report highlighted that, “China stands out, as it shows a recovery in trade from the second quarter on, on both the import and export sides. In the early months of 2020 commodity prices fell heavily, but began to recover as of May and, with the exception of energy products, by October had risen above pre-pandemic levels.”

In October, agricultural product prices were five per cent above their December 2019 level, industrial metals were 10 per cent higher and precious metals 30 per cent higher. However, the October prices of energy products were still around 33 per cent below their December 2019 level.

For 2021, ECLAC reports that the outlook for commodity prices is uncertain, as the evolution of the pandemic is a determining factor. Projections by the International Monetary Fund are for an October forecast of a  nine per cent increase in average commodity prices in 2021 with a four per cent increase for agri-food products, three per cent for base metals and 16 per cent for energy products. 

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