IMF improves GDP growth forecast for Latin America in 2020: an 8.1% drop

Some $12 trillion in stimulus supplied largely by advanced economies limited the damage worldwide, but emerging market economies face a tougher scenario

International Monetary Fund (IMF) Managing Director Kristalina Georgieva speaks at a news conference following the "1+6" Roundtable meeting at the Diaoyutai state guesthouse in Beijing, China November 21, 2019. Photo: Reuters/Florence Lo/File Photo
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The coronavirus-triggered collapse was avoided so far, but the failure in really conquering the pandemic, and the clear difficulties in maintaining stimulus and tackle mounting debt among poor nations can still crush a fragile recovery. This is the summary of the International Monetary Fund (IMF)‘s assessment of the global economy so far – a new report was released Tuesday by the organization.

At the start of the annual meetings of the International Monetary Fund and World Bank, the IMF issued slightly improved growth forecasts spurred by unexpectedly stronger rebounds from coronavirus lockdowns in the wealthiest countries and China.

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The IMF said it now expected the global gross domestic product to shrink 4.4% in 2020, compared to the 5.2% contraction it predicted in June, when business closures were at their peak. Some $12 trillion in stimulus supplied largely by advanced economies limited the damage, but poor countries and other emerging market economies faced a worsening picture, the global lender said.

“The story is less dire than we thought three months ago, but dire nonetheless,” IMF Managing Director Kristalina Georgieva said during a panel discussion that was held virtually.

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Georgieva said governments needed to stay focused on their healthcare responses to the coronavirus and must not withdraw stimulus prematurely.

If we cut these lifelines that have been extended to families and businesses before we are out of the health crisis, this could be catastrophic in terms of bankruptcies, unemployment, and undoing all that has been done so far

Kristalina Georgieva, IMF Managing Director.

For Latin America, the forecast is a little more optimistic than that of June: an 8.1% drop in the region’s GDP and a rebound in 2021 of more than 3% growth. Previously, the IMF had predicted that Latin America’s GDP would fall by 9.4% this year.

For Latin America’s largest economy, Brazil, IMF expects a shrink of 5.8% 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.

In a document describing the preliminary conclusions of a recent team visit to Brazil, and disclosed last week, the IMF said that “significant” negative risks include a second wave of the pandemic, “long-term scars” from a long recession, and shocks in confidence due to to the country’s huge public debt.

Although the IMF welcomes the government’s commitment to reduce Brazil’s debt, the Fund warned that it may take time for jobs, income, and poverty to return to pre-pandemic levels.

As for Mexico, the forecast is a 9% fall in 2020, and a 3,5% increase in 2021. “Based on these projections, employment, income, and poverty will take several years to return to pre-pandemic levels. Not only are the gains of the past decade in these areas being set back, but Mexico’s long-standing challenge of low growth also appears set to worsen,” wrote the organization.

The main risks for Mexico’s recovery are the possible resurgence of COVID-19 domestically, prolonged disruption in labor markets, renewed global financial volatility, lower oil prices, and adverse growth outcomes in key trading partners. “On the upside, early vaccine availability, advanced economy buoyancy benefiting from large policy interventions, and faster-than-expected re-absorption of workers into the labor force could boost confidence and growth,” said the IMF.

In this latest review of its forecasts, the IMF also said that Argentina‘s economy is expected to shrink 11.8%, Colombia‘s 8.2%, and Chile‘s, 6%.

Read the forecast summary below:

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