Latin America has become the region hardest hit in the world by the COVID-19 pandemic. The region has fallen into an economic crisis after what had already been several years of disappointing growth and limited progress on social indicators, as well as a period of social unrest in some countries at the end of 2019.
While most countries in the region have enforced measures to limit contagion, the coronavirus continues to spread rapidly. The impact has been wide-reaching, from a decline in external demand to a rise in uncertainty and the closure of businesses. Tourism has collapsed as movements have been restricted to try to contain the outbreak.
Unemployment rates have increased across Latin America and the Caribbean, substantially in some countries. Surveys suggest that the impact of the crisis is not only severe, but potentially long-lasting.
The multiple domestic and external shocks from the pandemic will cause the region’s economic activity to contract by an estimated 7.9% in 2020, making it a far deeper recession than those during the 2008-09 global financial crisis and the Latin America debt crisis in the 1980s.
Even so, there are reasons to temper these pessimistic forecasts. The international fallout from the pandemic has not been as bad as had been expected six months ago, especially on finance, remittances, and trade. In Latin America and the Caribbean, the large stimulus packages rolled out by several governments are mitigating the impact. Indeed, five of the 10 social transfer programs with the broadest population coverage in the developing world are in the region.
These factors should fuel a regional economic rebound of 4% in 2021, underpinned by a normalization of local and global conditions.
There are still numerous challenges. The region’s countries do not have the fiscal space of developed countries. Indeed, some were facing financial crises before the COVID-19 outbreak. What’s more, high levels of informality make it hard to provide relief through tax deferrals and wage subsidies to many firms and households. This informality combined with the low levels of funds makes designing an adequate policy response all that much more crucial.
More than six months into the pandemic, the hopes for a full return to normalcy are pinned on vaccines. The scale of the global effort to support cutting-edge research and fund the production capacity for vaccines is unprecedented. However, it may take time to develop vaccines that are effective against COVID-19, produce them in sufficiently large quantities, make them available in developing countries, and promote them so that they are considered to be sufficiently safe. Given these challenges, Latin American and Caribbean countries may face no choice but to live with the virus, perhaps for several more years.
Many countries in the region have gradually relaxed quarantines and lockdowns, either through explicit policy decisions or because stringent containment measures have become harder to enforce. Governments may need to focus on protecting the most vulnerable people while also adjusting health and safety standards across all sectors and activities in order to stem the probability of contagion as life goes on.
Schooling deserves attention. Distance learning, even if feasible, is unlikely to deliver the same knowledge as face-to-face teaching. For many children in the poorest segment of society, it simply may not be an option. If lockdowns continue to affect the education sector for too long, many children may never return to school and instead begin their working lives earlier than anticipated. Those who do go back to school will have lost months or even years of education, undermining their future incomes and social mobility prospects.
Given the unprecedented nature of the COVID-19 pandemic, forecasts of economic performance in 2020 could change, dramatically even. This poses a challenge. The types of policy responses needed to rekindle economic activity are vastly different in a sharp, temporary downturn than in a major, long-lasting recession. Assessing the situation correctly is crucial for countries to operate under common assumptions about the breadth and depth of the crisis, make policy decisions, and build consensus for them from the public and key stakeholders. Unfortunately, the severity of the global decline in output remains highly uncertain, and as such the impact on the region’s economies.
The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response such as by increasing disease surveillance, improving public health interventions, and supporting the private sector to sustain operations and jobs.
Latin America and the Caribbean are also exposed and vulnerable to natural disasters, from earthquakes to floods that can ravage entire regions, and hurricanes that devastate Caribbean states. The region is among the most vulnerable in the world because of the high population density in the areas where these disasters strike and the need for better risk management practices. Fortunately, we are getting better at understanding and managing these risks. Examples supported by the World Bank include the Pacific Alliance catastrophe bonds for earthquakes. Risk sharing across countries through mechanisms such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) can also provide readily available funds for recovery after a member country is hit by a hurricane.
Last Updated: Oct 09, 2020