Economy may be coronavirus' first major blow to Latin America
While COVID-19 cases in Latin America now total 151, there have been two deaths. However, the blow to the economy can be very severe.
The first case of COVID-19 diagnosed in Latin America occurred on Feb. 26 in Brazil, and involved a traveler from Italy. Since then, the pandemic has been growing in the continent, mainly due to people from Europe and the United States.
A total of 151 confirmed cases have been reported from Mexico (7), Jamaica (1), St. Barthélemy (1), Dominican Republic (5), St. Martin (2), Martinique (3), Costa Rica (13), Panama (8), Colombia (3), French Guyana (5), Ecuador (17), Peru (11), Brazil (34), Paraguay (5), Chile (17) and Argentina (19). So far, only Mexico has reported cases of recovery (4) and Argentina recorded the first death from COVID-19 on the continent, followed by one in Panama: both cases involved 64-year-old men with diabetes. The Argentine patient also had chronic bronchitis and renal failure and the Panamanian patient also suffered from bacterial pneumonia.
While the distance between Latin America and Wuhan served as an important protective factor that delayed the arrival of the virus, as it spread through Europe, its potential routes of transmission to the Americas also increased.
At the moment, it is uncertain how the spread of the disease will continue because several factors come into play: environmental conditions, how quickly people with symptoms of potential contagion go to medical centers, prevention measures imposed by governments, and simply chance, which will determine which individual in each age group and health condition is exposed to contagion.
Over the past few weeks, the blow to the world economy has been felt, and Latin America has been no exception.
The massive quarantines imposed by the Chinese government to contain the epidemic, as well as the widespread fear of contagion, have reduced the consumption of the general population, the production of industries across the globe, as well as the purchase of raw materials, their transportation and, consequently, oil consumption.
The reduction in oil demand has impacted on its price, which has fallen by 20%, particularly after the Organization of Petroleum Exporting Countries (OPEC) failed to convince Russia and Kazakhstan to reduce their oil production by 1.5 million barrels per day in order to regulate the fall in prices. In response, Saudi Arabia increased its production to over 10 million barrels per day and reduced the price of its official sales.
This implies a significant problem for several Latin American economies, especially Venezuela, Colombia and Ecuador, which are highly dependent on oil sales, and to a lesser extent Brazil and Argentina.
The impact will also be seen in the sale of other commodities, such as steel, due to the general slowdown in the production of goods. Given that the continent's economy is largely sustained by the production of raw materials, the impact will be felt, although there will be variations from one country to another.
Capital Economics has estimated that Mexico's economic growth will fall from an estimated 0.5% to 0.3%, Colombia's from 2.8% to 2.5%, Peru's from 4% to 3.3%, Brazil's from 1.5% to 1.3% and Argentina's, which was expecting a 0.5% contraction, will fall by 1%.
The slowdown in the commodities market has been correlated with a historical rise in the dollar, which consequently devalues local currencies, reduces income from sales actually made abroad and has repercussions on the relative impoverishment of the population.
In a continent that was already strongly shaken last year by a wave of protests caused by social inequality, this economic havoc can have a strong impact on the capacity of States to make social investment and the economic gap will surely tend to widen.
According to estimates by UNCTAD's Division on Globalization and Development Strategies, the global economy is likely to contract by two percent this year, which would translate into $1 trillion," Richard Kozul-Wright, director of that division, told UN News.
The #coronavirus outbreak could cost the global economy up to $2 trillion this year.@UNCTAD is calling on governments to take urgent steps to reduce the economic impact. https://t.co/bFGE9SZemC #COVID19 pic.twitter.com/EUkvKzJtwb
— United Nations (@UN) March 9, 2020
The same agency estimated that in the worst case scenario, the shock could reach 2 trillion. What this shows is a market with an overwhelming level of anxiety, perhaps even greater than any concerns about the health consequences of the pandemic.
Certainly, during the next few weeks we will see not only how the viral pandemic evolves, but also the economic one and the consequent readjustment in the weights of international power.