Latin America Rebound Imperiled by Resurgent Virus, IMF Says

(Bloomberg) --

The economic rebound forecast for Latin American this year faces risks from the recent resurgence of Covid-19 and slow vaccine roll-outs, the International Monetary Fund said.

The continuance of the health crisis in many countries casts a shadow over the near-term outlook for the region, IMF officials including Alejandro Werner, the Western Hemisphere director, wrote in a blog post published Thursday. Income per capita for the region won’t return to its pre-pandemic level until 2024, resulting in a 30% loss relative to the pre-virus trend.

Brazil will recover its pre-pandemic level of output in 2022, along with some Central American countries that benefit from trade and remittances resulting from U.S. fiscal stimulus. Mexico will recover in 2023, with tourism-dependent Caribbean economies the last to recover in 2024.

Despite the warnings, the region will grow 4.6%, 0.5% more than forecast in January and rebounding from a 7% contraction last year, the IMF said in last week’s update of the World Economic Outlook, on the back of higher commodity prices, remittances and stronger manufacturing output. But that’s below the 5.8% average for emerging markets excluding China.

Peru will grow the fastest at 8.5% in 2021, followed by Chile at 6.2%, 5.8% for Argentina, 5.1% for Colombia, 5% for Mexico and 3.7% for Brazil, according to fund forecasts.

Poverty in the region is expected to have grown by 19 million people –- about equivalent to the entire population of Chile or Ecuador.

“Latin America was the region of the world that grew the least before the pandemic,” Werner told reporters in an online briefing Thursday. “Very probably after the pandemic it’s going to confront situations that include greater debt, greater poverty, educational problems that accumulated during the months of the pandemic and the destruction of operational capital at a business level that obviously is going to create problems at the time of recovery.”

The pandemic is expected to leave long-lasting damage through school closures, which were longer than in other regions. Students aged 10 to 19 might expect 4% lower income on average over their lifetimes if the lost school days from 2020 are not made up, the IMF said, with students in Brazil among the most affected of the largest economies. The educational losses will worsen income inequality and already low levels of education, the fund said.

Countries in the region should maintain supportive fiscal and monetary policies where possible, while those with tight budgets should re-prioritize spending toward healthcare and support for households. Healing longer-term scars will require structural changes to improve access to high-quality education and healthcare, the fund said.

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