ECLAC: Economic crisis will be longer than previously believed
The impact of the coronavirus pandemic on the Latin American economy will be greater than expected, and the recovery slower than previously thought: only in 2025 could the regional activity levels that existed in 2019, before the viral outbreak, be reached the Economic Commission for Latin America and the Caribbean said Tuesday.
The crisis will last longer than previously thought and there will be effects on growth, unemployment, inequality and poverty that will be longer than expected, said ECLAC executive secretary, Alicia Bárcena, in a virtual press conference from the organization's headquarters in Chile.
Returning to the levels of economic activity prior to the crisis will take several years and will be slower than the subprime (financial) crisis of 2007 and 2008, he said.
Bárcena made her statements when presenting the 2020 economic study “Active macroeconomic policies for economic and social recovery and transformation”, focused on the situation created by the new coronavirus, the prospects and some recommendations for the countries.
The pandemic reached Latin America at a time when the region was already mired in economic problems and growth prospects had been reduced. But COVID-19 exacerbated the outlook and caused the worst regional economic crisis in the last 100 years.
The recession began in the first quarter of the year, with a 1.5% contraction in activity. ECLAC foresees that the fall in the Gross Domestic Product will be 9.1% at the end of 2020, which would be equivalent to a decline of a decade. The final figures, however, will be revised and may be even higher.
South America would be the most affected, with a GDP contraction equivalent to 9.4%, in Central America and Mexico the fall would be 8.4%, and 7.9% in the Caribbean — excluding Guyana.
By comparison, the decline in economic activity is expected to be 6.5% in the United States, and 8.7% in Europe.
The World Bank projected in June that the Latin American economy will contract 7.2% in 2020, but said there were positive reasons for a rebound in 2021 and predicted a 2.8% recovery in the region for next year.
ECLAC estimates that as a result of the pandemic, 2.7 million companies will close in Latin America in 2020, and unemployment will rise to 44 million people, 18 million more than in 2019.
Furthermore, informal economy has reached 54% of the population, or more than 159 million people; and poverty is projected to decline to levels of 2005, or 15 years ago, affecting some 231 million people. Extreme poverty, meanwhile, would reach 96 million people, a level equivalent to that of 1990, a setback of 30 years.
This is an unprecedented crisis.
The regional economy contracted 2% during the 2007-2008 financial crisis and recovered in 2009.
Now, however, even if the region grew at the average rate of 1.8% of the last decade, it would not be until 2025 that the GDP levels of 2019 would be reached, according to ECLAC forecasts.
If the growth rate doubles to 3%, the levels of 2019 could be reached in 2023, and if the growth were as the average of the last six-year period, that is, 0.4%, growth levels similar to those of 2019 in a decade, Bárcena said.
This is not the time for austerity, Bárcena said, referring to the challenges facing the governments of the region. "Active macroeconomic policies will be necessary to resume growth."
Among ECLAC's recommendations are the strengthening of tax collection - which currently stands at 23.1% of GDP on average compared to 34.3% in the countries of the Organization for Economic Cooperation and Development - and the reduction of tax evasion, which amounts to 6.1% of GDP.
International cooperation and the reduction of debt and the interests that countries face are key, said Bárcena, while explaining that public spending should be directed to investments in sectors that promote employment, social inclusion and productive transformation.