LatAm economy to contract 5.2% in 2020 - IMF
April 15, 2020 |
Global economy to shrink 3% during the "Great Lockdown" of 2020, according to the multilateral lender
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The Latin America and Caribbean (LAC) regional economy will be among the hardest hit by coronavirus pandemic that is causing the worst global economic crisis since the Great Depression of the 1930's, the International Monetary Fund said on Tuesday.
"The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes," Gita Gopinath, the IMF's chief economist said in a statement ahead of a conference call and release of its 2020 World Economic Outlook report.
The IMF unveiled its economic forecasts for this year and next, saying the rapid spread and lethal nature of the COVID-19 pathogen is resulting in the world being put into a Great Lockdown.
Latin America and Emerging Europe are both expected to see regional economies contract by 5.2% this year while the overall global economy will shrink by 3%, the IMF predicts. The global economy is expected to recover in 2021 with growth predicted to rise 5.8%.
"This recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit," said Gopinath.
The data were released just ahead of the IMF/World Bank Spring Meetings that are taking place via videoconference for the first time in an effort to stop the spread of the virus. Normally, the meetings are attended by 10,000 people at the IMF and World Bank headquarters in Washington, DC.
The two largest economies in the LAC region, Brazil and Mexico, will see their economies underpeform by a significant margin. The IMF sees Brazil's economy contracting 5.3% while Mexico is expected to drop 6.6%. Both are expected to rebound with just around 3% growth in 2021. The LAC region next year is expected to recover with a 3.4% growth rate, the weakest among all emerging markets and developing economies, which on a combined basis are expected to rebound with GDP of around 6.6%.
“Emerging markets face additional challenges. Unprecedented reversals in capital flows. Major currency pressures. And at the same time, coping with weaker health systems and much lower fiscal space to support their economies," Gopinath said.
The Global Financial Stability Board, which coordinates policies and programs of national financial authorities and international financial institutions, said the combination of the COVID-19 pandemic, plunge in oil prices, surging global risk aversion and prospects for a global recession created a perfect storm for emerging and frontier markets.
"Nonresident portfolio outflows from emerging markets reached a record level in dollar terms (more than $100 billion since January 21) and the highest ever relative to their aggregate GDP in the first quarter of 2020," the Global Financial Stability report said.
source: IMF Global Financial Stability Report - April 2020
Globally, the cumulative loss of global GDP over the 2020 and 2021 period could be around $9 trillion. If the pandemic does not subside significantly by the end of the second quarter of 2020, the economic contraction could extend another 3 percent. "If the pandemic continues into 2021, it may fall next year by an additional 8 percent compared to our baseline scenario," Gopinath's economic outlook report said.
“Policy makers are responding in an unprecedented manner by helping households, firms and financial markets, however, there is still considerable uncertainty about how the economic landscape will look like when we emerge from this lockdown," she said.
There was some relief for some of the world's poorest nations, however. On monday the IMF's managing director, Kristalina Georgieva said the institution's Executive Board approved the immediate debt service relief for 25 of its member countries under the revamped Catastrophe Containment and Relief Trust (CCRT). The IMF can provide about $500 million in grant-based debt service relief. Haiti was the only country in the LAC region to be included in this latest initiative.
(Additional reporting by Jo Bruni)