Latin America and the Caribbean: Quantifying the impact of COVID-19 - - PowerPoint PPT Presentation

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Latin America and the Caribbean: Quantifying the impact of COVID-19 - - PowerPoint PPT Presentation

May 15, 2023 380 likes •791 views

Latin America and the Caribbean: Quantifying the impact of COVID-19 with a view to reactivation 21 April 2020 Alicia Brcena Executive Secretary Economic Commission for Latin America and the Caribbean (ECLAC) Eight key messages 1. Before

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Latin America and the Caribbean: Quantifying the impact of COVID-19 with a view to reactivation

21 April 2020 Alicia Bárcena

Executive Secretary Economic Commission for Latin America and the Caribbean (ECLAC)

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Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation

Eight key messages

  • 1. Before COVID-19, Latin America and the Caribbean was growing

slowly, with limited fiscal space and increasing social conflict.

  • 2. COVID-19 is affecting the region through domestic and external

impacts: a standstill in domestic economic activity coupled with a deep recession in the world economy.

  • 3. The repercussions will cause the most severe recession

in the region since 1914 and 1930.

  • 4. The slump in international trade will exacerbate the recession.
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Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation

Eight key messages

  • 5. Unemployment is expected to rise sharply, increasing poverty

and inequality.

  • 6. The countries of the region have announced significant measures,

which must be strengthened and require greater funding.

  • 7. There is an urgent need for access to low-cost financial resources,

based on flexible support from multilateral financial bodies, debt service relief and, possibly, debt forgiveness.

  • 8. The region’s model of participation in international markets and options

for reactivation need to be reconsidered in light of the structural changes that will occur in globalization and in the world following COVID-19.

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Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation

Source: ECLAC, on the basis of Institute of International Finance and Bloomberg.

WORLD (SELECTED COUNTRIES AND REGIONS): GDP GROWTH, 2013–2020 (Percentages)

World GDP is set to contract more sharply in 2020 than it did during the global financial crisis

2013 2014 2015 2016 2017 2018 2019 2020 World 2.6 2.8 2.8 2.6 3.2 3.1 2.4

  • 2.0

United States 1.8 2.5 2.9 1.6 2.4 2.9 2.3

  • 3.8

Japan 2.0 0.4 1.3 0.6 2.0 0.8 0.7

  • 4.2

Eurozone

  • 0.3

1.4 2.1 1.9 2.5 1.9 1.2

  • 5.7

China 7.8 7.3 6.9 6.7 6.9 6.6 6.1 1.8 India 6.4 7.4 8.0 8.2 7.2 6.8 5.8 3.4

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World trade is plummeting: WTO estimates a fall of between 13% and 32% in 2020

Source: ECLAC on the basis of CPB Netherlands Bureau for Economic Policy Analysis, World Trade Organization.

a 2020 estimates from World Trade Organization

VOLUME OF WORLD TRADE IN GOODS: YEAR-ON-YEAR CHANGE, 2005–2020a (On the basis of a seasonally-adjusted index, in percentages)

7,0% 9,0% 6,0% 0,9%

  • 12,8%

13,9% 4,7% 1,4% 2,3% 2,8% 1,9% 2% 4,8% 3,4%

  • 0,4%
  • 40%
  • 30%
  • 20%
  • 10%

0% 10% 20% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

  • 32%
  • 13%
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COVID-19 has exposed the vulnerabilities

  • f interdependence

§ The globalization model based on highly fragmented production networks had been showing signs of depletion since the financial crisis:

  • World trade was already slowing: 2.7% annual growth (2012–18) compared to 6% previously

(1990–2008)

  • Growing criticism of globalization, especially in advanced countries
  • Trade tensions, competition over technology and decoupling of production between China

and the United States

  • Technological advances such as 3D printing may reduce the significance of low labour costs

§ COVID-19 originated at the heart of the international production networks, and its effects cascaded through them:

  • The stoppages in Chinese factories left the factories of the rest of the world without inputs,

forcing them to stop operating and to dismiss workers, thus amplifying the initial impact

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Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation Source: ILOSTAT, estimates modelled according to World Trade Organization, November 2019; World Social Protection Report 2017-2019 (International Labour Organization); Women and men in the informal economy: A statistical picture. Third edition (International Labour Organization); and European Centre for Disease Prevention and Control (ECDC).

More than a third of world employment is under threat

WORLD AND REGIONS OF THE WORLD: PERCENTAGE OF EMPLOYMENT IN AT-RISK SECTORS (Percentages)

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Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation

More than 500 million people may fall into poverty

WORLD: NUMBER OF PEOPLE LIKELY TO FALL INTO POVERTY BY PERCENTAGE DECLINE IN PER CAPITA INCOME OR CONSUMPTION, BASED ON A POVERTY LINE OF US$ 3.20 A DAY (Millions of people)

Source: Sumner, A., Hoy, C. & Ortiz-Juarez, E. (2020) Estimates of the impact of COVID-19 on global poverty. WIDER Working Paper 2020/43. Helsinki: World Institute for Development Economics Research (UNU-WIDER).

Based on a poverty line of US$ 3.20 a day, declines in per capita GDP or consumption of:

  • 5% would result in 135

million more people in poverty

  • 10%: 278 million
  • 20%: 581 million

135,3 278,4 581,4

100 200 300 400 500 600

5% 10% 20%

Decline in per capita income or consumption

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Latin America and the Caribbean: inadequate fiscal space

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Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation

Before the pandemic, Latin America had already seen a seven-year run of low growth

LATIN AMERICA: CHANGE IN GDP, AVERAGE BY SEVEN-YEAR PERIODS, 1901–2019 (Percentages)

Source: ECLAC, based on data from Maddison

4,3 1,4 4,2 4,5 1,9 3,2 6,3 5,5 5,3 5,8 6,2 2,6 2,2 3,1 3,2 3,5 2014–2019 0,4%

  • 6
  • 4
  • 2

2 4 6 8 10

1901 1903 1905 1907 1909 1911 1913 1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Start of the COVID-19 crisis

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The region is facing the COVID-19 economic crisis with macroeconomic and fiscal vulnerabilities and weaknesses

High levels of public debt and interest payments Monetary policy space much reduced following the crisis of 2008 Vulnerability of public sector enterprises High levels of debt in the non-financial corporate sector Insufficient tax collection, high levels of tax evasion and avoidance

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High debt and rising interest payments limit public expenditure

LATIN AMERICA AND THE CARIBBEAN (31 COUNTRIES): GROSS PUBLIC DEBT OF CENTRAL GOVERNMENTS, 2000–2019 (Percentages of GDP)

Latin America: 15 percentage point rise from 2011 to 2019

LATIN AMERICA (16 COUNTRIES): INTEREST PAYMENTS, CAPITAL EXPENDITURES AND HEALTH SPENDING OF CENTRAL GOVERNMENTS, 2010–2019 (Percentages of GDP)

Source: ECLAC.

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The financial vulnerability of public-sector enterprises limits fiscal space

§ The income and profitability of public enterprises in the natural resources sector (which are highly indebted) are being hit by falls in commodity prices. § 42% of non-financial public sector enterprises are systematically reporting shortfalls (net of fiscal transfers). § The transfers needed to cover the shortfalls amount to around 0.3 to 1.0 percentage points of GDP. § Recapitalizing these enterprises will require a financial effort

  • f a similar scale.

§ The liabilities of non-financial public sector enterprises total around 9% of GDP.

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Monetary space has also shrunk: reference rates are at historical lows, reducing the policy space

LATIN AMERICA AND THE CARIBBEAN (SELECTED COUNTRIES): MONETARY POLICY RATE IN COUNTRIES WHERE IT IS THE MAIN POLICY INSTRUMENT, JANUARY 2016 – DECEMBER 2019 (Percentages)

Source: ECLAC.

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Bu these policies have yet to bring down lending rates

  • r reinvigorate lending

LATIN AMERICA AND THE CARIBBEAN: REAL PRIVATE SECTOR LENDING, YEAR-ON-YEAR CHANGES IN QUARTERLY AVERAGES, FIRST QUARTER 2016–FIRST QUARTER 2019 (Percentages)

Source: ECLAC.

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High private sector indebtedness has limited the effectiveness of monetary policy

LATIN AMERICA (SELECTED COUNTRIES): LENDING TO THE PRIVATE SECTOR (HOUSEHOLDS AND NON-FINANCIAL CORPORATIONS) BY ALL SECTORS, DECEMBER – SEPTEMBER 2019

(Billions of dollars)

500 1.000 1.500 2.000 2.500 3.000

01.12.2001 01.05.2002 01.10.2002 01.03.2003 01.08.2003 01.01.2004 01.06.2004 01.11.2004 01.04.2005 01.09.2005 01.02.2006 01.07.2006 01.12.2006 01.05.2007 01.10.2007 01.03.2008 01.08.2008 01.01.2009 01.06.2009 01.11.2009 01.04.2010 01.09.2010 01.02.2011 01.07.2011 01.12.2011 01.05.2012 01.10.2012 01.03.2013 01.08.2013 01.01.2014 01.06.2014 01.11.2014 01.04.2015 01.09.2015 01.02.2016 01.07.2016 01.12.2016 01.05.2017 01.10.2017 01.03.2018 01.08.2018 01.01.2019 01.06.2019

Source: ECLAC

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LATIN AMERICA AND THE CARIBBEAN: CENTRAL GOVERNMENT REVENUE BY SUBCOMPONENT, 2017–2019

(Percentages of GDP)

Source ECLAC, on the basis of official figures. Note: Simple averages. Does not include Dominica. Figures for 2019 are projections based on budget documents or official estimates at end-2019.

Fiscal space drastically narrowed by the low tax burden and tax evasion

Tax evasion and avoidance amount to 6.3% of regional GDP, which is:

  • Half of central government

social spending

  • 4 times the spending on non-

contributory social protection programmes (conditional cash transfers + non-contributory pensions + labour inclusion: 1.47% of GDP)

  • More than the average central

government expenditure on education and health

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The impact of the crisis

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Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation

A drop in international trade Falling commodity prices

Heightened risk aversion and worse global financial conditions

Less demand for tourism services Decline in remittances

Transmission channels of the COVID-19 crisis in Latin America and the Caribbean

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Low commodity prices are worsening the terms of trade and reducing fiscal income, particularly in South America and Mexico

INDICES OF INTERNATIONAL COMMODITY PRICES, JANUARY 2003–MARCH 2020

(Index: January 2011 = 100)

Source: ECLAC on the basis of World Bank, “World Bank Commodities Price Data (The Pink Sheet)”.

COMMODITY PRICES, VARIATION 31 DECEMBER 2019–17 APRIL 2020 WTI BRENT COPPER GOLD

  • 80%
  • 70%
  • 60%
  • 50%
  • 40%
  • 30%
  • 20%
  • 10%

0% 10% 20%

$18.09 $28.66 $5140 $1686

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Deteriorating international financial conditions reduce available external financing for the region

LATIN AMERICA: NON-RESIDENT CAPITAL INFLOWS TO THE REGION (Billions of dollars)

Source: ECLAC, on the basis of Institute of International Finance (IIF).

Down US$ 80 billion between 2019 and 2020

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The Caribbean most affected by the collapse in tourism

LATIN AMERICA AND THE CARIBBEAN: SHARE OF TOURISM IN GDP AND EMPLOYMENT, 2018 (Percentages)

Source: ECLAC.

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The sharp contraction in remittances to the region is dealing a blow to the GDP of the smallest and most vulnerable economies

LATIN AMERICA AND THE CARIBBEAN: REMITTANCES RECEIVED, 2018 (Percentages of GDP)

Source: ECLAC on the basis of World Development Indicators database, World Bank.

  • The economic downturn in the

United States will lead to a fall in remittance flows

  • The service and construction

sectors are the hardest hit and employ the largest number

  • f migrants.
  • Migrants employed in hotels

and restaurants have lost their jobs and are not eligible for government subsidies.

5 10 15 20 25 30 35 HTI HND GTM DMA DOM BLZ BOL ECU LCA COL ATG CRI TTO BRA CHL

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Economic structure determines the severity of the impact

LATIN AMERICA: SHARE OF SECTORS IN GDP BY INTENSITY OF THE IMPACT OF COVID-19 (GDP in real terms at 2019 prices)

Source: ECLAC on the basis of official figures.

The contracting global economy, falling trade and containment measures are affecting production with varying severity, depending on the sector and country.

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Source: CEPAL

a Central America includes Cuba, Haiti and the Dominican Republic

56.4 // // -18.0

GDP of Latin America and the Caribbean to shrink by more than 5% in 2020

THE CARIBBEAN: PROJECTED GDP GROWTH RATES, 2020 (Percentages) LATIN AMERICA: PROJECTED GDP GROWTH RATES, 2020a (Percentages)

56.4%

  • 18
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Source: ECLAC Note: Central America includes Cuba, Haiti and the Dominican Republic.

GDP of Latin America and the Caribbean to shrink by more than 5% in 2020

LATIN AMERICA AND THE CARIBBEAN: PROJECTED GDP GROWTH RATES, 2020 (Percentages)

Country

GDP growth 2020

Argentina

  • 6.5%

Bolivia (Plurinational State of)

  • 3.0%

Brazil

  • 5.2%

Chile

  • 4.0%

Colombia

  • 2.6%

Ecuador

  • 6.5%

Paraguay

  • 1.5%

Peru

  • 4.0%

Uruguay

  • 4.0%

Venezuela (Bolivarian Republic of)

  • 18.0%

South America

  • 5.2%

Costa Rica

  • 3.6%

Cuba

  • 3.7%

El Salvador

  • 3.0%

Guatemala

  • 1.3%

Haiti

  • 3.1%

Honduras

  • 2.8%

Mexico

  • 6.5%

Nicaragua

  • 5.9%

Panama

  • 2.0%

Dominican Republic 0.0% Central America and Mexico

  • 5.5%

Central America

  • 2.3%

Latin America

  • 5.3%

Country

GDP growth 2020

Antigua and Barbuda

  • 7.2%

Bahamas

  • 6.8%

Barbados

  • 5.8%

Belize

  • 3.9%

Dominica

  • 3.6%

Grenada

  • 7.3%

Guyana 56.4% Jamaica

  • 5.3%

Saint Kitts and Nevis

  • 6.5%

Saint Vincent and the Grenadines

  • 3.6%

Saint Lucia

  • 8.1%

Suriname

  • 4.4%

Trinidad and Tobago

  • 5%

The Caribbean

  • 2.5%

Latin America and the Caribbean

  • 5.3%
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Such a large contraction has not been seen since the Great Depression of 1930 (-5.0%),

  • r even since 1914 (-4.9%)

LATIN AMERICA: GDP GROWTH RATES, 1901–2020

(Percentages)

Source: ECLAC, on the basis of Maddison Project Database 2018.

  • 8
  • 6
  • 4
  • 2

2 4 6 8 10 1901 1908 1915 1922 1929 1936 1943 1950 1957 1964 1971 1978 1985 1992 1999 2006 2013 2020

2020

  • 5.3%

1930

  • 5.0%

1914

  • 4.9%
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The value of Latin American and Caribbean exports is expected to decline by roughly 15%

LATIN AMERICA AND THE CARIBBEAN: EFFECTS OF COVID-19 ON GOODS EXPORTS BY SUBREGION, FORECAST FOR 2020 (Percentage change)

  • 14.8
  • 17.6
  • 11.7
  • 10.2
  • 13.9

Source: Economic Commission for Latin America and the Caribbean (ECLAC).

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Unemployment in the region is expected to surge by more than during the financial crisis: adding some 12 million to the unemployed

LATIN AMERICA: GDP GROWTH AND CHANGE IN UNEMPLOYMENT (Percentage points) LATIN AMERICA: ECONOMICALLY ACTIVE POPULATION, UNEMPLOYED PEOPLE AND UNEMPLOYMENT RATE (Number of people)

Increase of 3.4 percentage points in the unemployment rate

2019 2020 Economically active population 322,421,908 326,849,019 Number of unemployed people 26,148,377 37,719,817 Change in number

  • f unemployed

11,571,440

Unemployment rate (%) 8.1

11.5

Source: Economic Commission for Latin America and the Caribbean (ECLAC).

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The GDP decline and higher unemployment will increase the number of poor by almost 30 million

LATIN AMERICA: POVERTY AND EXTREME POVERTY IN THE SCENARIO OF A 5.3% DECLINE IN GDP AND A 3.7 PERCENTAGE POINT INCREASE IN UNEMPLOYMENT IN 2020 (Millions of people) (Percentage of the population)

Source: Economic Commission for Latin America and the Caribbean (ECLAC).

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Policy measures and options

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  • Travel restrictions and monitoring measures

for travellers from areas affected by COVID-19.

  • Flight bans (to and from specific countries) and

border closures.

  • Distance learning and homeschooling with

asymmetries in connectivity.

  • Social distancing, with the closure of

restaurants, bars, cinemas, the encouragement

  • f teleworking and reduced office hours.
  • Strengthening of the capacity of the health

sector: beds, mobile hospitals, medical supplies (2.5 beds / 1000 people).

The region’s countries have taken immediate measures to contain the virus and protect the workforce and household income

  • Total or partial quarantine with working arrangements:

legal measures for teleworking, reduced working hours, introduction of flexible hours, advance leave.

  • Protection of the workforce and income: wage support

to offset loss of income through advance payments, wage subsidies, unemployment insurance and the suspension or reduction of payments for water, gas and electricity services.

  • Social protection to reduce the social impact
  • n people with the lowest incomes through subsidies,

cash transfers or advance payments through social programmes.

  • SMEs and other companies: special financial support

for SMEs and the informal sector, in order for banks to renegotiate and improve conditions for loans to SMEs and the informal sector.

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  • Monetary and financial sector: assistance to financial institutions to avoid mismatches and

liquidity squeezes; reductions in legal reserve requirements to encourage intermediation; restructuring of loan portfolios and deferral of payments; increase in interventions in the foreign exchange market to ease volatility.

  • Fiscal: flexibility to redirect public budgets, delays or deferrals of taxes and search for

additional financing to channel resources towards urgent short-term measures.

  • Fiscal packages have been announced in the region, ranging from 0.6% of GDP to more than

10% of GDP. Additional efforts are being made, including State guarantees of loans.

  • Preservation of productive capacity and creation of conditions for the revival of economic

activity through liquidity mechanisms for companies, particularly SMEs.

Monetary and fiscal measures to avoid the collapse

  • f the economic system
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Policymakers must broaden their toolkits and increase coordination

  • Between governments and central banks to finance stimulus

packages through the purchase of public securities or the use of external assets to finance emergency spending increases.

  • Between central banks and institutions responsible for bank

supervision and regulation to ensure that the resources injected in these situations are channelled towards households and productive sectors in order to preserve income and employment.

  • Adapt macroprudential instruments to ease exchange-rate volatility

and excessive currency depreciation and to avoid destabilizing capital movements.

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All countries must increase their fiscal space and need more favourable financing conditions

§ Access to new financing sources and mechanisms. § Low-cost, flexible credit lines. § Forgiveness, restructuring and/or relief of debt and the related interest, including that of middle-income countries. § The leaders of the G20 countries must allow multilateral organizations to grant loans at favourable interest rates and provide debt relief for heavily indebted countries, postponing payment deadlines or forgiving the debt. § Otherwise, payments will be impossible and fiscal space will be compromised. § Exceptional measures to face an unprecedented crisis. There will be no progress without international cooperation and solidarity.

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Implement measures to increase access to foreign exchange

§ The establishment of swaps between the United States Federal Reserve and the central banks of Brazil and Mexico is a positive step, but the rest

  • f the region does not benefit from this type of support.

§ As was the case in 2008, Special Drawing Rights (SDR) must be approved

  • n a large scale to provide liquidity and increase reserves.

§ Implement solid macroprudential policies, including regulations relating to international capital flows. § Countercyclical fiscal and monetary policies can only be implemented in developing economies if international financial institutions provide liquidity and prevent this liquidity from returning to the advanced economies.

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Warning: the global economy will not return to ‘normal’

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The production crisis will bring about changes that will outlast the pandemic

1. Need for greater resilience of production networks: § Diversification of suppliers for countries and businesses. § Nearshoring of end-consumer markets. § Reshoring of production processes and strategic technological processes.

  • 2. Companies have adapted their internal functioning to social distancing measures,

accelerating the automation and digitization of some sectors and industries.

  • 3. Multilateralism is weakening (unilateral restrictions on exports of medical supplies

in more than 60 countries).

  • 4. Globalization will not be reversed, but the global economy will become more

regionalized around three poles: Europe, North America and East Asia.

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More regional integration is required for the post-COVID-19 world

§ The region’s future should be shaped based on the new economic geography to reduce dependence on imported manufactures and develop regional value chains. § There is a need for industrial policies that allow the region to strengthen production capabilities and create new strategic sectors. § In order to have an impact on the new global economy, the region must advance towards greater integration in production, trade and technology. § An integrated market of 650 million people will serve as a buffer against shocks

  • riginating outside the region.

§ This market would provide the scale required to make new industries viable and promote production networks and joint technological research among countries and subregions. § Public certainty must be established on the basis of a new universal social protection system including basic income. § Inclusive and sustainable international governance based on the 2030 Agenda.

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