The coronavirus pandemic will cause a historic 5,3% drop in the economy of Latin America and the Caribbean in 2020, leading to the worst social crisis in the region in decades with millions of new poor and unemployed, ECLAC said on Tuesday (21.04.2020).
According to report, even before the pandemic, Latin America and the Caribbean had already accumulated almost seven years of low growth, with an average of 0,4% between 2014 and 2019. The crisis that the region is suffering this year 2020, with a GDP drop of -5,3%, will be the worst in its entire history. To find a contraction of comparable magnitude, we must go back to the Great Depression of 1930 (-5%) or even further to 1914 (-4,9%).
The document also states that the coronavirus crisis has been transmitted to Latin America and the Caribbean through five channels: a reduction in international trade, falling commodity prices, heightened risk aversion and worsening global financial conditions, lower demand for tourism services and a reduction in remittances.
"The effects of COVID-19 will generate the largest recession the region has suffered since 1914 and 1930. A sharp increase in unemployment is expected with negative effects on poverty and inequality.“, said Alicia Bárcena in her presentation.
In the detail of its projections, the body anticipates that South America shrinks -5,2% since several countries in this area will be greatly affected by the fall in activity in China, which is an important market for their exports. Meanwhile, in Central America the fall would be -2,3%, affected by the fall in tourism and the reduction in activity in the United States, its main trading partner and source of remittances; while the Caribbean would contract by -2,5%, due to the reduction in demand for tourist services.
The disruption of value chains caused by the pandemic will have the greatest impact on the Brazilian and Mexican economies, which have the largest manufacturing sectors in the region.
Meanwhile, the value of the Exports from the region would fall by around 15%. The The greatest impacts would occur in South American countries, which specialize in the export of primary goods and are therefore more vulnerable to price declines. Meanwhile, the value of exports from Central America, the Caribbean and Mexico will suffer from the impact of the slowdown in the United States economy. Mexico will also be hit by the fall in oil prices.
The productive crisis will bring Changes that will persist beyond the pandemic health, the report explains. Greater resilience will be needed in production networks by diversifying suppliers in terms of countries and companies, favouring locations closer to the final consumer markets (nearshoring) and relocating strategic production and technological processes (restoring). Companies are already adapting their internal operations to social distancing measures, accelerating the trend towards automation and digitalisation, and the fragility of multilateralism is becoming more acute.
ECLAC adds that globalization will not be reversed, but it will There will be a more regionalized world economy around three poles: Europe, North America and East Asia.
"To have an impact on the new global economy, the region must move towards greater regional integration in production, trade and technology. Coordination of our countries in macroeconomic and production matters is crucial to negotiate the conditions of the new normal, particularly in an urgent dimension in the current crisis and in the medium term: that of financing for a new style of development with equality and environmental sustainability.”, emphasized the highest authority of ECLAC.
Aduana News is the first Argentine customs newspaper to launch its digital version. With 20 years of experience, its publications and initiatives aim to provide the most relevant knowledge on customs issues in order to contribute to safe trade in the region.
