ECLAC says positive growth in the C'bean in 2021 still insufficient to recover pre-pandemic levels of economic activity

SANTIAGO, Dec. 17,  CMC – The Economic Commission for Latin America and the Caribbean (ECLAC) forecasts that while Latin America and the Caribbean will experience positive growth in 2021, it will still not be enough to recover from the pre-COVID-19 pandemic levels of economic activity. 

In a new report unveiled on Wednesday, ECLAC said the region will experience a contraction of -7.7 percent in 2020 but will have a positive growth rate of 3.7 percent in 2021 “due mainly to a statistical rebound that will, nonetheless, be insufficient for recovering the economic activity levels seen prior to the coronavirus pandemic (in 2019).”

ECLAC’s “Preliminary Overview of the Economies of Latin America and the Caribbean 2020” – one of the United Nations organisation’s flagship annual reports – was released during a virtual press conference by ECLAC Executive Secretary Alicia Bárcena.

According to the document, in a context of global contraction, “Latin America and the Caribbean is the region in the developing world that has been hardest hit by the crisis stemming from COVID-19.”

In the decade prior to the pandemic, the report says the region was on a low-growth trajectory, and that, in 2020, “it faces an unprecedented combination of negative supply and demand shocks, which is translating into the worst economic crisis in the last 120 years.

“Although the significant fiscal and monetary efforts made by countries have served to mitigate the effects of the crisis, the pandemic’s economic and social consequences have been exacerbated by the structural problems that the region has suffered historically,” the report stated. 

In 2021, the report foresees a positive gross domestic product (GDP) growth rate that will “fundamentally reflect a statistical rebound, but the process of recovering pre-crisis levels of GDP will be slow and will not conclude until 2024.” 

“The growth dynamic in 2021 is subject to high uncertainty related to the risk of renewed outbreaks of the pandemic, the agility with which vaccines are produced and distributed, and the capacity to maintain fiscal and monetary stimulus to support aggregate demand and productive sectors,” Bárcena said. “Making progress on sustainable and inclusive growth necessitates a productive transformation towards environmentally sustainable sectors, which would favour job creation and technological innovation.” 

She said “the region’s weaknesses and structural gaps, its narrow fiscal space, inequality, limited coverage and access to social protection, elevated labour informality, productive heterogeneity and low productivity are central to understanding the extent of the pandemic’s effects on the region’s economies, their difficulties for implementing policies that would mitigate those effects, and the challenges they face in undertaking a sustainable and inclusive economic reactivation.” 

Before the pandemic, the ECLAC chief said the region already had low economic growth: 0.3 percent on average in the 2014-2019 period, with a 0.1 percent rate notched in 2019. 

“With the arrival of the pandemic, this low economic growth was compounded by negative external shocks and the need to implement policies aimed at confinement, physical distancing and the suspension of productive activities, which meant that the health emergency ended up prompting the worst economic, social and productive crisis that the region has ever lived through,” Bárcena said. 

She said the contraction in economic activity has been accompanied by “a significant rise in the unemployment rate,” which is forecast at around 10.7 percent in 2020; a “steep fall” in labour participation; and a “considerable increase” in poverty and inequality.

According to the projections released by the United Nations organisation, South America is seen contracting by -7.3 percent in 2020 and growing by 3.7 percent in 2021; growth in Central America is expected to shrink by -6.5 percent in the current period and expand by 3.8 percent next year; while the Caribbean is seen contracting by -7.9 percent in 2020 and growing by 4.2 percent in 2021. 

The report emphasises that, in order to keep the region from perpetuating its low-growth dynamic, “expansionary fiscal and monetary policies are needed along with environmental and industrial policies, all of which would enable the structural transformations that the region requires and would promote sustainable development.” 

It also urges the need to prioritise spending on the economic and social reactivation and transformation by “fostering employment-intensive and environmentally-sustainable investment in strategic sectors”; extend the basic income to people living in situations of poverty; provide financing to Micro, Small and Medium-sized Enterprises (MSMEs); offer incentives for productive development, the digital revolution for sustainability and clean technologies; and universalise social protection systems. 

The report contends that, beyond national efforts, the region’s economic reactivation and transformation will require financing and international cooperation. 

In this regard, it stresses the need to “utilise instruments such as the issuance and reallocation of the International Monetary Fund’s Special Drawing Rights (SDRs) to strengthen the reserves of the region’s countries and regional agreements”; include vulnerable middle-income countries in the G20’s debt moratorium initiative (DSSI); and also “set in motion the debt for climate change adaptation swap in the case of the Caribbean”, along with the creation of a resilience fund; and “capitalise multilateral, regional and national credit institutions.”

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