Virus resurgence puts dent in Latin America, Caribbean recovery, says IMFWednesday, February 17, 2021
The International Monetary Fund (IMF) says while Latin America and Caribbean economies managed to bounce back from the novel coronavirus pandemic's initial economic devastation earlier in 2020, the virus's resurgence towards the end of the year threatens to thwart an uneven recovery and add to the steep social and human costs.
“After the sharp contraction in the second quarter of last year, the brisk recovery in the third quarter exceeded expectations in some larger economies, like Brazil, Peru and Argentina,” said the Washington-based financial institution in a statement.
“Manufacturing recovered faster than services. Net exports have recovered to pre-crisis levels while consumption and investment are lagging,” it added.
The IMF said early indicators, like industrial production and retail sales, pointed to a continuing comeback in the last quarter of 2020, boosted by sizeable fiscal stimulus, easy global financial conditions, and economic agents' resilience and adaptation to the new reality.
To this end, it had upgraded its 2020 forecast for the region from -8.1 per cent to -7.4 per cent.
“This already uneven recovery has been threatened by the pandemic's recent resurgence and the reintroduction of stricter containment measures in some countries, as well as spill overs from the slowdown in the global economy,” it said.
The IMF further noted that new cases and deaths have increased in the past two months in South and Central America, despite signs of stabilisation more recently.
In spite of this resurgence, the IMF later revised its regional 2021 growth forecast upwards to 4.1 per cent (from 3.6 per cent in October), based on the stronger than expected performance in 2020, an expectation of expanding vaccination efforts, better growth outlook for the US, and higher prices of some commodities.
“Failure to contain new infections, imposition of new lockdowns, and the consequent change in people's behaviour would all weigh on growth,” the IMF warned. “A weaker rebound in labour markets would cause more permanent social damage,” it added, further noting that over 16 million people are estimated to have fallen into poverty.
While growth for this year in Brazil, Mexico, Chile, Colombia, and Peru was revised up, it was downgraded for the Caribbean, from four to 2.4 per cent, because the resumption in vital travel and tourism activity has been much slower than anticipated.
“Given all the uncertainties, countries' first priority should be to ensure adequate resources for health care systems, including vaccination and testing,” the IMF continued. “And second, continue supporting vulnerable sectors most affected by the pandemic and cementing the uncertain recovery.”
Removing too much fiscal support too early would jeopardise these goals, it warned.
“Countries with room in their budget for more spending should continue providing support to their economies while making it more targeted, an effort that would certainly accelerate the recovery,” the IMF said. “Countries with limited spending capacity should prioritise health and household support.”
It also recommended that fiscal policy continue to be supported by expansionary monetary policy in countries where inflation expectations are well anchored.
The IMF said it has been supporting Latin America and the Caribbean with policy advice, technical assistance and financing, providing over US$66 billion to 21 countries, including contingency lines.
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