Medellín, Colombia's second-biggest city, skyline. Image: Shutterstock

Colombia will be least affected by the crisis among Latin American largest GDPs

A new report by ECLAC predicts that the Colombian economy will shrink by -5.6% in 2020, a negative figure that is better than the region's average

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  • Colombia was in a good position before the arrival of the coronavirus, displaying the best performance among the large countries in the region in early 2020;
  • Latin America will experience a -9.1% fall in GDP, dragged down by Brazil and Mexico, the biggest markets.

Considering the biggest economies in Latin America, Colombia will be the least affected by the crisis brought by the Covid-19 pandemic. The latest report from the Economic Commission for Latin America and the Caribbean (ECLAC), shows that the South American country, the fourth-largest gross domestic product (GDP) in the region, will contract by -5.6% in 2020. Despite the strong negative result, the Colombian economy will suffer less than that of its neighbors.

The Colombian economy, which has seen only one drop in GDP in more than half a century, was already considered one of the most stable in Latin America. The country was in a good position before the arrival of the coronavirus, displaying the best performance among the large countries in the region in early 2020. As a recent fiscal measure, ECLAC’s report highlights that the Colombian government created three new lines of credit for medium and small enterprises and self-employed workers, totaling $4.5 billion, or 1.5% of national GDP.

But economic activity in the world is falling by more than what was predicted a few months ago as a result of the crisis brought by the coronavirus pandemic. Latin America is no exception in this scenario, and the region will experience a -9.1% fall in the gross domestic product (GDP) in 2020, according to ECLAC, a United Nations agency that fosters economic cooperation among countries. 

In fact, as Latin America emerged as an epicenter of the outbreak in late May, economic forecasts for the region have deteriorated – in April, ECLAC predicted GDP would contract by -5.3%. The new report emphasizes that “negative external effects” are hitting local economies  through the sharp decline in trade, tourism and remittances.

Internal factors derive from the sanitary emergency itself, which prompted social distancing measures and affected businesses and incomes. While some governments have begun to lift measures to contain the spread of Covid-19, others have had to keep them in place or even redouble them due to the persistent daily uptick in cases. Recently, for example, Colombia’s main cities reinstated isolation policies to contain infections.

In a virtual press conference held from the organization’s headquarters in Santiago, Chile, ECLAC’s executive secretary, Alicia Bárcena, said that the fall in economic activity is of such a magnitude that GDP per capita in Latin America will end 2020 at a level similar to what was seen in 2010.

“A greater increase in unemployment is also foreseen now, which in turn will produce a significant deterioration in poverty and inequality levels,” Alicia Bárcena stated in her presentation.

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Brazil and Mexico will contract by 9% or more

Brazil and Mexico, Latin American powerhouses, are also two of the most affected markets, with predicted GDP contractions of -9.2% and 9%, respectively. Argentina and Chile, which, together with Colombia, complete the Top 5 economies in Latin America, will see their economies shrink by 10.5% and 7.3%. 

According to the report, Latin American countries have announced major packages of fiscal measures to confront the health emergency and mitigate its social and economic effects. In addition, the crisis has led monetary authorities to include conventional and non-conventional tools in their approaches. Actions taken by central banks in the region have been geared towards not only attenuating the effects of the crisis and laying the foundation for an eventual reactivation, but also preserving their economies’ macro-financial stability.

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ECLAC proposes the implementation of an emergency basic income as an instrument of social protection, an anti-hunger grant – equivalent to 70% of one regional extreme poverty line ($67 dollars based on the 2010 dollar), with a total cost estimated at 27.1 billion dollars (0.52% of regional GDP) – and several initiatives to support companies and at-risk workers. “In order to implement any of these lines of action, it is necessary to strengthen the role of international financial institutions so they can better support countries,” Alicia Bárcena emphasized. In April, Brazil introduced an emergency aid of BRL 600 ($115) monthly, for 5 months, for people without income. 

“National efforts must be supported by international cooperation to expand policy space through increased financing under favorable conditions and debt relief. Likewise, making progress on equality is crucial for effectively controlling the pandemic and for a sustainable economic recovery in Latin America and the Caribbean,” Bárcena affirmed.

Unemployment and poverty must be contained

It is expected that the regional unemployment rate will be around 13.5% by the end of 2020, which represents a 5.4 percentage point increase versus the 2019 figure (8.1%). With this new estimate, the ranks of the unemployed are seen swelling to 44.1 million people in total, which represents an increase of nearly 18 million people versus the level in 2019 (26.1 million unemployed persons). These figures are significantly higher than those observed during the global financial crisis, when the unemployment rate rose from 6.7% in 2008 to 7.3% in 2009 (0.6 percentage points).

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In that context, ECLAC forecasts that the number of people living in poverty will rise by 45.4 million in 2020, which means that the total number of people in that situation will go from 185.5 million in 2019 to 230.9 million people in 2020 – a figure that represents 37.3% of Latin America’s population. Within this group, the number of people experiencing extreme poverty is seen rising by 28.5 million, going from 67.7 million people in 2019 to 96.2 million in 2020, a figure equivalent to 15.5% of the total population.