Latin America begins slow trudge to recovery

Latin America has started recovering from the coronavirus hammer blow – but a return to pre-crisis output levels may take several years as risks circle the region.

While still anemic, activity levels in Latin America’s biggest economies started improving in May and June.

Countries have begun easing sanitary restrictions and benefited from a rebound in US and Chinese demand for their commodities and manufactured goods.

“You can say that on average, from June, economic activity in Latin America was reactivating,” Moody’s Analytics senior Latin America economist Alfredo Coutiño said during a Latin America-focused webinar hosted by the research company.

Key risks on the radar are a potential spike in infection rates as countries reopen, a new wave of social unrest and stronger global trade tensions – all of which may dampen Latin America’s economic prospects and erode already stressed fiscal metrics – itself another risk for the fragile region.

Under the research company’s base case scenario, coronavirus infection rates peak in August-September and no resurgence in cases materializes, countries continue to reopen, and fiscal and monetary stimulus continues through 2020.

Moody’s Analytics expects Peru to register the biggest contraction this year and Colombia the smallest. The company forecasts a fall in GDP of around 9% for Latin America, with Central America faring the best out of the three sub-regions.

Latin America is due to see positive growth in 2021 – but with output levels recovering to pre-crisis levels only in 2022 or beyond.

Coutiño cited the impact of the loss of productive capacity and jobs, which will “affect the trajectory of the economy recovery ahead.”

Private investment – particularly in infrastructure and manufacturing – will play a central role in recovery efforts in the region. Governments, which have spent and borrowed to help companies and families weather the crisis, today generally have reduced capacity to bankroll public works.

To attract investment, having the right business environment and rules is vital, said Coutiño. “Future investment is going to flow where guarantees are given that [investors] can remain there and can leave the country when there is a need to exit.”