Latin America and the Caribbean will have positive growth in 2021, but it will not be enough to recover the levels of pre-pandemic economic activity. That was the New Year’s prognostication from an annual report published by ECLAC at the end of the year.
The Latin America and the Caribbean region will mark a contraction of -7.7% in 2020, but will have a positive growth rate of 3.7% in 2021, mainly due to a statistical rebound that, however, will not be enough to recover the levels of economic activity before the coronavirus pandemic (in 2019), ECLAC indicated today in a new report.
ECLAC released its 2020 Preliminary Balance of the Economies of Latin America and the Caribbean , one of the main annual reports of the United Nations body, in a virtual press conference offered by its Executive Secretary, Alicia Bárcena.
According to the document of the Economic Commission for Latin America and the Caribbean (ECLAC), in a context of global contraction, Latin America and the Caribbean is the region hardest hit in the developing world by the crisis derived from COVID-19. In the decade before the pandemic, the region showed a low growth trajectory and in 2020 it faces an unprecedented combination of negative supply and demand shocks, which translates into the worst economic crisis in the last 120 years.
Although the important fiscal and monetary efforts made by the countries have mitigated the effects of the crisis, the economic and social consequences of the pandemic have been exacerbated by the structural problems that the region has historically dragged. For the year 2021, a positive GDP growth rate is expected, which basically reflects a statistical rebound, but the recovery in the level of gross domestic product (GDP) before the crisis will be slow and will only be reached by the year 2024.
“The dynamics of growth in 2021 is subject to high uncertainty related to the risk of outbreaks of the pandemic, the agility to produce and distribute vaccines and the ability to maintain fiscal and monetary stimuli to support aggregate demand and the productive sectors. Advancing in a sustainable and inclusive growth requires a productive transformation towards environmentally sustainable sectors that favor the generation of employment and technological innovation”, said Alicia Bárcena.
The region’s historical structural weaknesses and gaps, its limited fiscal space, inequality, low coverage and access to social protection, high labor informality, productive heterogeneity and low productivity are central to understanding the scope of the effects of the pandemic in the economies of the region, its difficulties in implementing policies to mitigate these effects, and the challenges in undertaking a sustainable and inclusive economic reactivation.
Before the pandemic, the region already showed low economic growth: on average 0.3% in the 2014-2019 six-year period, and specifically in 2019 a rate of 0.1%. With the arrival of the pandemic, negative external shocks and the need to implement policies of confinement, physical distancing and closure of productive activities were added to this low economic growth, which made the health emergency materialize in the worst economic crisis, social and productive experience that the region has experienced.
The contraction in economic activity has been accompanied by a significant increase in the unemployment rate, which is expected to be around 10.7% in 2020, a sharp drop in labor force participation and a considerable increase in poverty and inequality.
According to the projections provided by the United Nations, South America would contract -7.3% in 2020 and grow 3.7% in 2021; Central America would fall -6.5% in the present period and would expand 3.8% next year; While the Caribbean would record a contraction of -7.9% in 2020 and a growth of 4.2% in 2021.
The ECLAC document emphasizes that to prevent the region from persisting in its low-growth dynamics, expansionary fiscal and monetary policies are required along with environmental and industrial policies, which allow the structural transformations that the region needs and promote sustainable development.
It raises the need to prioritize spending for economic and social reactivation and transformation by promoting employment-intensive and environmentally sustainable investment in strategic sectors; extend basic income to people living in poverty; grant financing to micro, small and medium enterprises (MIPYMES); provide incentives for productive development, digital revolution for sustainability and clean technologies; and universalize social protection systems.
It is argued that beyond national efforts, the economic reactivation and transformation of the region will require financing and international cooperation.
In this area, it emphasizes the need to use instruments such as the issuance and reallocation of Special Drawing Rights (SDRs) of the International Monetary Fund to strengthen the reserves of the countries of the region and regional agreements; include vulnerable middle-income countries in the G-20 debt moratorium initiative (DSSI) and also implement the debt swap for adaptation to climate change in the case of the Caribbean along with the creation of a resilience fund; and capitalize multilateral, regional and national credit institutions.
In its Preliminary Balance of the Economies of the region, ECLAC foresees an average contraction of -7.7% for 2020 – the highest in 120 years – and a rebound of 3.7% in 2021.