Latin America and Caribbean economies face a resurging virus that threatens to thwart an uneven recovery, increase COVID-19 cases and deaths, and plunge more people into poverty, Alejandro Werner, the director of the IMF's Western Hemisphere Department, writes in a blog with the IMF's Anna Ivanova and Takuji Komatsuzaki.
The IMF revised its regional 2021 growth forecast upwards to 4.1 percent (from 3.6 percent 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 of some commodities. But the region faces strong headwinds as more countries reintroduce strict containment measures.
A slow recovery: The region is forecasted to 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. The crisis had a disproportionately large impact on employment with losses concentrated among women, young, informal and less educated workers—with consequences for social indicators.
The way forward: Countries should continue to prioritize spending on healthcare, including vaccination and testing. Support for vulnerable sectors most affected by the pandemic should continue as well. Removing too much support too early could jeopardize what is already an uncertain recovery.
The pandemic hit Latin America and Caribbean harder because of its many inherent structural fragilities (for example, more people working in sectors that require close proximity and less in which teleworking is feasible). The region has paid a high toll in terms of infections and deaths relative to its population. The IMF has been supporting Latin America and the Caribbean with policy advice, technical assistance and financing, providing over $66 billion to 21 countries, including contingency lines. This amounts to over two thirds of the emergency liquidity support the IMF extended globally.
Watch the press briefing about the latest regional economic outlook update for Latin America and the Caribbean here.
You can also listen to Werner discuss the outlook for the region in an event with the Americas Society/Council of the Americas.
AVERTING A DIVERGENCE DISASTER
The world must do everything in its power to reverse a dangerous and ever-widening gap that has emerged between rich and poor countries as a result of the pandemic, IMF Managing Director Kristalina Georgieva stressed during a recent media roundtable.
"We must do everything in our power to reverse this dangerous divergence—especially because some parts of the world are moving to the new climate and digital economy, and large parts will be left behind in getting there. This is a major risk and potential historic missed opportunity!" she said in remarks at the press event.
The distribution of fiscal support measures and now vaccines is dramatically different across countries. As the United States ramps up vaccines to end the health crisis, only a handful of African nations have launched vaccination campaigns.
The depth of divergence: Even though the IMF has forecasted 5.5 percent growth for the world in 2021, 150 economies are not going to reach their pre-pandemic level this year. There will still be 110 economies that won't reach their pre-pandemic level in 2022. About 50 percent of emerging markets and developing economies that were converging towards advanced economies per capita income over the last decade are expected to diverge over the 2020–2022 period, the MD highlighted.
"You can call it the lost decade. It may be a lost generation," she warned.
Three 'R's: The MD laid out three key priorities: winning the race between a mutating virus and vaccines, boosting the resolve of policymakers to continue support until the recovery is durably underway, and revitalizing international cooperation when it comes to easing the debt burden on emerging markets and low-income countries.
"One thing is clear: future generations will not look kindly on those who underestimate the dangerous divergence facing us today," she said.
A consequential year: Speaking at the Warwick Economic Summit to about 2000 students from 60 countries, IMF Deputy Managing Director Antoinette Sayeh reiterated the MD's key message on divergence.
"2021 can be the most consequential year of our lifetimes," she said. "If we can come together and sow the right policy seeds today, we can exit the crisis with minimal scarring and build the foundation of a 21st century economy."
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