Latin America had been growing at a slow pace since long before the pandemic descended on the region towards the end of March.
And the arrival of the coronavirus caused a setback of ten years. In other words, we will have the same level of Gross Domestic Product (GDP) per capita as in 2010, according to the calculation of the Economic Commission for Latin America and the Caribbean (ECLAC).
“It will be a new lost decade”Daniel Titelman, director of the agency’s Economic Development Division, tells BBC Mundo.
With Latin America becoming the global epicenter of the pandemic, the estimated economic contraction for this year is 9.1%, a decline so unusual that it would be almost unthinkable in a context other than the current one.
That is why many analysts speak of a “war economy”, in relation to the magnitude of what we are experiencing.
In this scenario, the countries of the region that foresee the most brutal falls in economic activity will be Argentina, Brazil and Peru (With the exception of Venezuela, which would drop 26% this year, but which is not included in this analysis due to the difficulty in obtaining detailed and reliable information on its economy).
And the ones with the shallowest falls will be Paraguay, Guatemala and Uruguay.
Although the effects of the pandemic and quarantines are a brutal blow to the economies, it is also true that other factors that were already present before COVID-19 spread throughout the region contribute to the fall, leaving thousands of infected and dead. .
Countries with the deepest falls
Except for the long and deep recession that Venezuela has had for years, the decline in Peru far exceeds the rest of the countries Latin Americans, with an estimated drop in economic activity of 13% by 2020.
The virus spread throughout the country in a matter of days, and despite containment efforts, the contagion curve shot up to such a point that the government launched what would become one of the longest quarantines in the world, which It started on March 16 and lasted until the beginning of July.
That closure, which saved lives, left a deep economic footprint that is now reflected in the deep contraction expected by the end of the year. But the closure of activities have also added external shocks.
Its main trading partners, the United States and China, lowered their demand for products from the Andean country. In fact, in May alone, Peruvian exports fell 46%, especially those mining products like copper and gold.
The case of Argentina is quite unique, because before the pandemic it was already in serious trouble, in the midst of a gigantic public debt crisis.
The country has had negative growth since last year and when the virus crossed its borders, the government imposed mandatory confinements in order to prevent an explosion of infections and deaths.
Things were bad and the pandemic made them worse.
As has happened in other countries, the internal problems were compounded by the drop in foreign demand and the uncertainty due to the evolution of the negotiations to restructure its debt.
At the end of May and for the ninth time in its history, Argentina entered default (default), adding an extra ingredient to structural problems that have not yet allowed it to stand up.
The pandemic did not find Brazil well. Although it is far from a crisis like Argentina’s, last year it had a low level of growth of only 1.1%.
And in the first quarter of this year, when the virus was not yet hitting the country hard, it was already on a downward curve.
From the external sector, large markets such as the United States, China and Europe they also lowered their demand of Brazilian products.
And, in the regional market, manufacturing exports Brazilian within Latin America, directed to countries like Argentina, Chile or Mexico, descended with force.
The difficulties were reflected in a paralysis of important industries such as automotive, in addition to commerce and services, which directly influenced the economic contraction in the country.
The countries with the smallest falls in their economic activity
In the first two months of the year, Paraguay had a fairly high growth due to the soybean harvest, a product that has an important weight in its economy.
That is why the arrival of the pandemic found the country in a relatively good position.
To this is added that Paraguay has achieved a greater control of the pandemic than other countries and that allowed him to begin to make confinement more flexible as of May.
They are now in a phase of gradual return to activities, with greater opening of economic activity and with the pandemic, at least until now, under control.
According to ECLAC projections, Guatemala will fall less than the Central American average and much less than that of Latin America.
That is explained because agriculture has a strong impact on the economy of the country and, during this crisis, it has been one of the least affected sectors, compared to others such as tourism.
Despite the fact that the global economy is going through a hard contraction, important agricultural exports in Guatemala, such as the sugar and cardamom, have continued to grow.
And that is the key factor that has helped the country to alleviate the negative effects of the crisis.
Uruguay, like Paraguay, will see a contraction in its economy at a much shallower level than the other Latin American countries.
This country managed to control the pandemic and was able to start an economic reopening in June, that allowed the return of the students to the schools and a gradual normalization of the activities.
At Latin American level, the brutal drop in economic activity, explains Titelman, reflects that the global crisis has been much stronger than expected a few months ago and that the containment measures had to be extended for a longer time, since Latin America was became the center of the pandemic.
“The region is going to have the worst contraction in the last 100 years”, he points out, with gigantic increases in unemployment, poverty and income inequality.
Looking ahead, the economist expects “a slow recovery for Latin America,” which may take several years.
Growth and investment levels could recover towards the end of 2022, but “if we look at history, the recovery from poverty will be much slower.”
With the idea of starting the engines as soon as possible, there are pressures in the region for countries to reopen their economies, explains Titelman
But he warns that “you have to be very careful with the reopens” so that the infections do not go off again.
A hasty term of confinement can be more costly – economically speaking – than maintaining it until the outbreak is under control.
It has to be opened in phases, he says, and governments have to generate protocols so that when economic activity returns, things don’t get out of control.
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