IMF: Pandemic resurgence threatens to thwart uneven Caribbean recovery
The International Monetary Fund, IMF, says while Latin America and Caribbean economies managed to bounce back from COVID-19’s initial economic devastation in early 2020, the pandemic’s resurgence towards the end of the year threatens to thwart an uneven recovery and add to 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 said.
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”.
The 2020 forecast for the region was upgraded from an expected contraction of 8.1 to a contraction of 7.4 per cent.
“However, 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 spillovers from the slowdown in the global economy,” the fund said.
The IMF said new cases and deaths have increased in the past two months in South and Central America, “though there are signs of stabilisation more recently”; and that hospital capacity is stretched in many countries, adding that testing capacity remains low compared to advanced and other emerging economies, despite some improvements since August.
Despite this resurgence, the IMF 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 United States, and higher prices for some commodities.
Growth is expected to accelerate later in the year, the multilateral agency said. Still: “The pandemic’s social and human costs have been immense, and cast a large shadow over this forecast,” it cautioned.
More than 16 million people are estimated to have fallen into poverty; employment remains below pre-crisis levels; inequality is likely to have increased in most countries; and more than 18 million people have been infected, while half a million have died, the fund noted.
“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 sudden change in international investors’ sentiment would put pressure on countries with fiscal and external vulnerabilities.”
But: “On the upside, success in vaccination and containing the pandemic, to which most countries are strongly committed, as well as additional fiscal support would create the conditions for a faster recovery,” the IMF said.
Growth was revised upwards for Brazil, Mexico, Chile, Colombia and Peru, but downgraded for the Caribbean, from 4.0 per cent to 2.4 per cent, “because resumption in vital travel and tourism activity has been much slower than anticipated,” the IMF said.
Central America has been supported by robust remittances, rising food prices and effective policy support, but both that region as well as the Caribbean were seen as facing additional risk from natural disasters.
“Full recovery is still a long way ahead, though,” the international financial institution, cautioned. “We forecast that the region will go back to its pre-pandemic levels of output only in 2023, and GDP per capita in 2025, later than other parts of the world,” IMF said.
Countries with space in their budgets should continue to provide economic support, targeted towards programmes that can aid recovery; but those that don’t, the IMF added, should prioritise spending on health and household support.
The IMF also noted that it has been supporting Latin America and the Caribbean with policy advice, technical assistance and financing, providing over US$66 billion to 21 countries. This translates to over two-thirds of the emergency liquidity support extended globally.
“And we stand ready to do more,” the IMF said.