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)
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. 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. Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
World GDP is set to contract more sharply in 2020 than it did during the global financial crisis WORLD (SELECTED COUNTRIES AND REGIONS): GDP GROWTH, 2013–2020 ( Percentages ) 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 Source: ECLAC, on the basis of Institute of International Finance and Bloomberg. Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
World trade is plummeting: WTO estimates a fall of between 13% and 32% in 2020 VOLUME OF WORLD TRADE IN GOODS: YEAR-ON-YEAR CHANGE, 2005–2020 a (On the basis of a seasonally-adjusted index, in percentages) 20% 13,9% 9,0% 10% 7,0% 6,0% 4,8% 4,7% 3,4% 2,8% 2,3% 1,9% 2% 0,9% 1,4% -0,4% 0% -10% - 13 % -12,8% -20% -30% -32% -40% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: ECLAC on the basis of CPB Netherlands Bureau for Economic Policy Analysis, World Trade Organization. a 2020 estimates from World Trade Organization Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
COVID-19 has exposed the vulnerabilities of 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 Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
More than a third of world employment is under threat WORLD AND REGIONS OF THE WORLD: PERCENTAGE OF EMPLOYMENT IN AT-RISK SECTORS (Percentages) 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). 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) Based on a poverty line of US$ 3.20 a day, declines in per 600 capita GDP or consumption of: 500 • 5% would result in 135 400 million more people 300 in poverty 200 • 10%: 278 million 100 135,3 278,4 581,4 • 20%: 581 million 0 Decline in per capita income or consumption 5% 10% 20% 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). Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
Latin America and the Caribbean: inadequate fiscal space
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) 10 6,2 6,3 5,8 4,5 5,5 5,3 4,3 8 4,2 3,5 2014–2019 3,2 3,2 6 3,1 0,4% 2,6 4 2,2 2 0 1,9 1,4 -2 Start of the COVID-19 -4 crisis -6 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 Source: ECLAC, based on data from Maddison Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
The region is facing the COVID-19 economic crisis with macroeconomic and fiscal vulnerabilities and weaknesses Monetary policy High levels of public Vulnerability of space much debt and interest public sector reduced following payments enterprises the crisis of 2008 Insufficient tax High levels of debt collection, high in the non-financial levels of tax evasion corporate sector and avoidance Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
High debt and rising interest payments limit public expenditure LATIN AMERICA (16 COUNTRIES): INTEREST PAYMENTS, CAPITAL EXPENDITURES LATIN AMERICA AND THE CARIBBEAN (31 COUNTRIES): AND HEALTH SPENDING OF CENTRAL GOVERNMENTS, 2010–2019 GROSS PUBLIC DEBT OF CENTRAL GOVERNMENTS, 2000–2019 (Percentages of GDP) (Percentages of GDP) Latin America: 15 percentage point rise from 2011 to 2019 Source: ECLAC. Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
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 of a similar scale. § The liabilities of non-financial public sector enterprises total around 9% of GDP. Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
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. Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
Bu these policies have yet to bring down lending rates or 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. Alicia Bárcena Latin America and the Caribbean: Quantifying the effects of COVID-19 with a view to reactivation
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