Latin America is the region hardest hit by the COVID-19 pandemic. The health crisis sharply contracted growth, which has had an enormous social and economic impact, given that it occurred after several years of sluggish economic growth and limited progress in social indicators. It also followed major social unrest in some countries in late 2019.
The COVID-19 crisis will have a long-term impact on the region’s economies. Lower levels of learning and employment are likely to reduce future earnings, while high levels of public and private debt may strain the financial sector and slow recovery.
Despite the major impact of the pandemic, the economic outlook for Latin America and the Caribbean is expected to improve this year. After regional GDP declined 6.7 percent (excluding Venezuela) in 2020, the region is expected to grow by 4.4 percent in 2021.
Despite the challenges of the pandemic, there are signs pointing to a rapid recovery. International commodity trading remained relatively strong, despite the sharp decline in trade in services, particularly tourism. Most commodity prices are higher than before the COVID-19 crisis, thanks partly to China’s early recovery. Remittances to the region were also higher than before the pandemic, a crucial issue for several countries of the Caribbean and Central America.
Another positive sign is that capital markets remained open in most countries of the region. In fact, foreign debt levels increased, helping to mitigate the economic and social effects of the crisis. Although most countries of the region have incurred significant budget deficits since the onset of the pandemic, the additional spending was used to strengthen healthcare systems, provide cash transfers to households and help businesses. At the same time, implementing proactive measures helped debtors and reduced the risk of financial crises.
A year after the pandemic was declared, the hopes for a full return to normalcy are pinned on vaccines. The scale of the global effort to support cutting-edge research and fund the production capacity for vaccines is unprecedented. However, it may take time to develop vaccines that are effective against COVID-19, produce them in sufficiently large quantities, make them available in developing countries, and promote them so that they are considered to be sufficiently safe. Given these challenges, Latin American and Caribbean countries may face no choice but to live with the virus, perhaps for several more years.
Many countries in the region have gradually relaxed quarantines and lockdowns, either through explicit policy decisions or because stringent containment measures have become harder to enforce. Governments may need to focus on protecting the most vulnerable people while also adjusting health and safety standards across all sectors and activities in order to stem the probability of contagion as life goes on.
Schooling deserves attention. Distance learning, even if feasible, is unlikely to deliver the same knowledge as face-to-face teaching. For many children in the poorest segment of society, it simply may not be an option. If lockdowns continue to affect the education sector for too long, many children may never return to school and instead begin their working lives earlier than anticipated. Those who do go back to school will have lost months or even years of education, undermining their future incomes and social mobility prospects.
Although there are many reasons for pessimism, major crises also create key opportunities for large-scale economic restructuring. The largest transformation may result from the accelerated digitization brought on by the pandemic, which could invigorate several sectors. Digitization could boost financial services, especially payment systems, which is a weak area for the region. Electronic platforms could create job opportunities even for unskilled workers. Additionally, by providing information on working hours and earnings, these platforms could support job formalization. Finally, online trading in goods and services offers an opportunity to increase the region’s integration in the global economy.
The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response such as by increasing disease surveillance, improving public health interventions, and supporting the private sector to sustain operations and jobs.
Latin America and the Caribbean are also exposed and vulnerable to natural disasters, from earthquakes to floods that can ravage entire regions, and hurricanes that devastate Caribbean states. The region is among the most vulnerable in the world because of the high population density in the areas where these disasters strike and the need for better risk management practices. Fortunately, we are getting better at understanding and managing these risks. Examples supported by the World Bank include the Pacific Alliance catastrophe bonds for earthquakes. Risk sharing across countries through mechanisms such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) can also provide readily available funds for recovery after a member country is hit by a hurricane.
Last Updated: Mar 31, 2021