South America, Slowly Sinking
The COVID-19 pandemic has struck Latin America the hardest. Given that it emerged after several years of stagnant economic growth and modest improvement in social indicators, the health crisis dramatically slowed growth, having a massive social and economic effect. It also came after massive civil unrest in late 2019 in a number of countries.
Regional Unrest
In several major Latin American countries, high policy uncertainty continues to suppress development. Uncertainty about the direction of economic policy and reforms in Brazil and Mexico, for example, is likely to have slowed real GDP and investment growth in 2019.
Although engaging in the restoration of internal and external balances in stressed economies that witnessed abrupt stops in capital flows in 2018–2019 in Argentina and Ecuador, continued economic rebalancing has served as a drag on economic growth.
Recently, a few nations in the region, notably Colombia, Chile, and Ecuador, have witnessed civil unrest, which has disrupted economic development in some cases. As policymakers pursue alternative strategies and reforms to make development more equitable and address social demands, economic policy uncertainty has increased in these countries.
COVID-19 effects
The COVID-19 crisis has long-term consequences for the economies of the region. Lower levels of education and jobs are likely to lower potential profits, while high levels of public and private debt are likely to burden the financial system and hinder recovery.
Despite the pandemic’s difficulties, there are signs of a quick recovery. Given a sharp drop in trade in services, especially tourism, international commodity trading remained relatively high. Because of China’s early recovery, most commodity prices are higher than they were prior to the COVID-19 crisis. Remittances to the area were still higher than they were prior to the pandemic, which was a crucial factor.
Another encouraging sign is that capital markets in most of the country remained open. As such, foreign debt levels rose, helping to offset the crisis’s economic and social consequences. Despite the fact that most countries in the region have run large budget deficits since the outbreak of the pandemic, the extra funds were used to improve healthcare services and provide cash transfers.
Vaccines are being pinned on for a complete return to normalcy a year after the pandemic was announced. The size of the global initiative to finance vaccine production capability and promote cutting-edge research is unprecedented. However, developing effective COVID-19 vaccines, producing them in large enough quantities, and making them available in developing countries can take some time.
