In the second quarter of 2020, Brazil, Chile, Colombia, Mexico, and Peru lost a combined 30 million jobs, with female, young and low-educated workers hit particularly hard. That’s what the new Regional Economic Outlook: Western Hemisphere, by the International Monetary Fund (IMF), points out when it comes to Latin America and the Caribbean.
Even with the recovery at a faster pace in some of the region’s economies and the rebound of the labor market to some extension, IMF’s current estimates point “to lasting income losses, potentially reversing some of the social progress achieved until 2015. Poverty is projected to increase significantly, exacerbating income inequality, already among the highest in the world before the pandemic,” wrote IMF’s in a blog post.
According to the IMF, two structural characteristics of Latin American and the Caribbean economies contributed to the relatively larger economic impact:
- comparatively more people work in activities that require close physical proximity, and less people have jobs in which teleworking is feasible.
- Almost 45%of jobs are in contact-intensive sectors (like restaurants, retail stores, or public transportation), compared to just over 30% for emerging markets.
- In reverse, only about one in five jobs can be done remotely, half the share of advanced economies and below the emerging world average (26%).
- These two features, in addition to a high degree of informality and poverty, and combined with lower trade and financial turbulence caused by the ailing global economy, contributed to the historic collapse in activity.
This analysis came just days after a slight improvement in the organization’s general forecast for the region. The IMF said that now expects the global GDP to shrink 4.4% in 2020, compared to the 5.2% contraction it predicted in June, when business closures were at their peak.
For Latin America, the forecast is a little more optimistic than that of June: an 8.1% drop in the region’s GDP. Previously, the IMF had predicted that Latin America’s GDP would fall by 9.4% this year.
Furthermore, the organization forecast is for a GDP growth of 3.6% in 2021 throughout the region, with most countries not going back to the pre-pandemic GDP level until 2023. Real income per capita will also not recover so soon; IMF’s projection is for this to happen not before until 2025.
In Latin America’s largest economy, Brazil, emergency aid and credit programs were decisive in mitigating the effects of the coronavirus pandemic. IMF expects a shrink of 5.8% in Brazil’s GDP this year, much less than the 9.1% contraction it had previously estimated, and forecasts a “partial” recovery and a 2.8% growth in the next year.
The slow recovery of the global economy means a dim outlook for exports in general. “Domestically, consumption of contact-intensive goods and services will likely be depressed until the pandemic is controlled, and income levels might stay subdued even afterwards. The resulting weak demand and uncertainty will hold investment back over the medium term. Some job losses might become permanent, reducing potential growth, especially where fiscal support has been timid.”
The final outcome, however, “will be shaped by how the pandemic impacts external and domestic demand, and how the scars left by the crisis affect the region’s production capacity”.