Latin America to experience worst recession in history in 2020, UN agency warns

Alicia Barcena, secretary general of the Economic Commission for Latin America and the Caribbean, December 10, 2018, in Marrakech.
Alicia Barcena, secretary general of the Economic Commission for Latin America and the Caribbean, December 10, 2018, in Marrakech. FADEL SENNA / AFP

"The effects of Covid-19 will lead to the biggest recession the region has suffered since 1914 and 1930", alerted, Tuesday April 21, the secretary general of the Economic Commission for Latin America and the Caribbean (Cepal), Alicia Barcena, during a virtual press conference from Santiago de Chile.

Cepal, a UN agency, forecasts a contraction of the economy of around 5.3% in a region that was already experiencing a period of economic fragility: between 2010 and 2019, the regional growth rate of Gross domestic product (GDP) rose from 6% to 0.2%. The recession has been particularly acute over the past five years.

The contraction of the economy in 2020 should mean an increase of 4.4 points in the poverty rate, which would drop from 30.3% to 34.7%, according to Cepal. In other words, some 29 million people will fall below the poverty line, including 16 million in deep poverty. Unemployment is expected to be around 11.5%, up 3.4 points from 2019.

"To find a contraction of this magnitude, we must go back to the Great Depression of 1930 (5%) or even further, to 1914 (4.9%)", specifies the report entitled "Taking the dimension of the effects of Covid-19 to think of reactivation" and presented on Tuesday by Alicia Barcena.

Venezuela, Argentina, Mexico and Ecuador most affected

The worst recessions announced concern, first of all, Venezuela, with –18%. Argentina, Mexico and Ecuador are expected to contract by 6.5%, Nicaragua by 5.9%. And some Caribbean islands, which depend mainly on tourism, will be the most affected (–7.2% for Antigua and Barbuda, –6.8% for the Bahamas, –8.1% for Saint Lucia…).

This recession, says the text, will be largely due to the fall in global economic activity due to the pandemic, especially in the United States, China and Europe, the main trading partners of Latin America and the Caribbean. . Regional exports to China should be the ones that will decrease the most (-24.4%). "The most exposed countries are Argentina, Brazil, Chile and Peru, the region's largest exporters of products (such as iron, copper, zinc, aluminum or even soy) to China ", specifies Cepal.

Central American economies depend heavily on money sent by migrants from the United States to their families back home

The economies of Central America and, to a lesser extent, Mexico, depend heavily on the money sent by migrants settled in the United States to their families who have stayed behind. This resource, which represents 30% of Haiti's GDP or 20% of the GDP of El Salvador or Honduras, could suffer a drop of the order of 10% to 15% in 2020. "It could be between four and eight years before the amounts return to their 2019 level, alert the report. Between 80% and 90% of this money is used to cover the basic needs of receiving households (food, health, housing), and this contraction will have significant effects on consumption and poverty. "

"G20 leaders must insist that multilateral organizations lend at favorable interest rates and relieve the debt of highly indebted countries, by deferring or canceling it, insisted Alicia Barcena. Otherwise, refunds will be impossible and the fiscal space will be in jeopardy. Exceptional measures are needed to deal with an unprecedented crisis. There will be no progress without international cooperation and solidarity. "

The organization also calls
to structural changes
in production methods

In an interview at World In early April, Cepal’s executive secretary, who then estimated that the region’s recession would be around –3% in 2020, also called for the lifting of sanctions against Venezuela and Cuba.

In its report, Cepal welcomes the economic measures announced by various countries to deal with the health crisis, such as Peru, which should allocate 7% of its GDP to these measures, or even Chile.

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The organization also calls for structural changes in production methods because "The return to normalcy will not and should not be a return to the situation that existed before the pandemic" : "We must favor locations closer to end consumer markets and relocate (…) when economically viable, supports the Cepal report. In this context, regional integration is called upon to play a key role in the development strategy of the countries of Central America and the Caribbean ", a market of 650 million people.

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