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Latin America will have its deepest crisis since the Great Depression

The ECLAC estimates that during this year the economies of Latin America and the Caribbean will have their strongest contraction since 1930 and 1914.

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May 27th, 2022

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The Economic Commission for Latin America and the Caribbean (ECLAC) published its second Special Report on the impacts of COVID-19 and its conclusions are very disturbing, for being discreet. Concern about the economic impact that the pandemic will have on the region has been going on for at least a month, but only now is it possible to begin to predict its proportion.

Although the final seriousness of the situation will depend on factors that are constantly changing (such as the number of infections and deaths or the decisions taken by multilateral agencies), there are already elements that are so significant that ECLAC has stated that "the world economy will not return to 'normal'". 

 

In general terms, the ECLAC report reaches three major conclusions:

 

  • The region's GDP will fall by more than 5% in 2020, which would be the sharpest contraction in the region's economy since 1930 and 1914.

 

  • Unemployment would increase by 3.4%, equivalent to more than 37 million people.

 

  • Falling GDP and rising unemployment could push 30 million people into poverty, of whom 15 million could fall into extreme poverty.

 

To put these "millions of people" into perspective, one fact: Peru currently has 33 million inhabitants.

 

This will be the case for five reasons, ECLAC predicts:

  1. The reduction of international trade will be radical.
    Both because of the sanitary measures that all governments are taking (quarantines and border closures) and because of the interest that countries have in keeping certain key products within their territories (such as masks and ventilators, we are seeing right now) and the search to reduce costs by minimizing the movement of products and materials.
  2. The fall in prices of primary products.
    Products on which Latin American economies are highly dependent. The fall in the price of oil has been the most notorious example of all, but other primary products have had notable falls as well, such as copper.

  3. Global financial conditions will worsen, increasing investors' fear of risk.
    This will make the recovery of economies slower and countries are likely to have fewer resources for social investment.
  4. Reduced demand for tourism services.
    Both because of the mobility restrictions currently imposed by the entire continent (which will probably have to be lifted and re-established several times over the next two years) and because of the lower liquidity of the population, the tourism industry will be one of the most strongly affected in the region. ECLAC estimates that the hardest hit in this regard will be the Caribbean countries, which are the most dependent on this industry.
  5. Reduction of remittances.
    The increase in unemployment in the United States, as well as the lack of financial aid for migrants in the crisis, will make sending money to Latin American and Caribbean countries much less likely. ECLAC predicts that this will particularly impact the most vulnerable Central American economies, such as Haiti, Honduras, Guatemala and El Salvador.
  What's coming?

ECLAC predicts that globalization is not going to be reversed: we are not going to return to having economies with strictly protected national markets, but what can happen is that the economy will tend to be much more regionalized along three axes: North America, Europe and East Asia.

Therefore, they conclude, the economies of the region will have to integrate and strengthen their cooperation.

Latin America and the Caribbean is a region of 650 million people, which, if integrated, would be a large enough market to stimulate the development of strategic sectors (such as pharmaceuticals, for example) and protect us from shocks generated outside the region.

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