Heavy dependence on informal labour markets and tourism exacerbates the Covid-19 shock
Of all emerging market regions, Latin America and the Caribbean (Latam) has been most affected by the Covid-19 pandemic, both in terms of infection and death rates, and regarding the impact on its economy. The outlook is highly uncertain and weighted down by growing fears of a new wave of infections. Rising prospects of multiple Covid-19 vaccines are definitively hopeful. However, the vaccine rollout is expected to move more slowly in the Latam region compared to advanced markets due to smaller vaccine orders so far relative to population and more logistical challenges. Therefore the economic benefits from the vaccine are expected to manifest first through the improving external environment as rollout across advanced markets boosts trade, commodity prices and external financing flows.
- The pandemic has revealed structural weaknesses, which has made the region particularly vulnerable to the measures to contain the spread of Covid-19: border closures, travel bans, lockdowns and social distancing.
- Hardest hit have been countries with a large informal economy, a high dependence on contact-intensive sectors such as tourism, and a low ability of working remotely.
- More developed and diversified economies, particularly those that quickly restored access to international capital markets and had room for government stimulus packages, are more resilient.
- Still, most countries in the region, including the more developed ones, needed emergency liquidity support and credit lines from multilateral agencies to deal with higher financing needs resulting from rising expenditures and falling fiscal and external revenues due to the Covid-19 crisis. One of the region’s long-term problem children, Brazil, stands out positively in this respect.
- Latam’s economic recovery from the Covid-19 pandemic will be partial and uneven. It will be stronger in countries that have ample fiscal space to support their economies, as well as in those that have good institutional quality to help an effective rollout of vaccines. Meanwhile, recovery will be lagging in the tourist-dependent countries.
Find the full report here: https://atradius.ca/reports/economic-research-latin-america-one-of-the-worst-affected-by-covid19.html