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As Latin America continues to fight the coronavirus epidemic, some economies in the region may simply enjoy a “record contraction” that has not been noticed since World War II, according to investment bank Goldman Sachs.
Latin America and the Caribbean have a new global epicenter of the pandemic, and the United Nations warned that several countries in the region are “now among those with the highest infection rates in the world in line with the inhabitant.”
Countries such as Brazil, Mexico, Peru, Colombia and Chile are among the ten most sensitive, according to johns hopkins University’ knowledge. More than 100,000 more people have been killed by Covid-19 in Brazil in Brazil.
“The picture is very interesting,” Said Alberto Ramos, head of Latin American economic studies at Goldman Sachs, CnBC Street Signs Asia on Wednesday.
“We hope to come out of a very deep gap at this time of year and 2021,” Ramos said, adding that some countries such as Argentina, Peru and Mexico are expected to enjoy double-digit contractions in growth. He said others may simply revel in less serious falls that “remain a record contraction, at least the worst we’ve seen since World War II.”
The only positive is that inflation remains low in the region, which would allow the region’s central banks to maintain a relatively accommodative financial policy during a protracted era for economies, Ramos said.
Mexico’s gross domestic product fell 17.3% in the current quarter with the last 3 months, Reuters reported in July, presenting initial data.
Meanwhile, Argentina, the region’s third-largest economy, reached an agreement with creditors to restructure $65 billion in sovereign debt in early August. For months, Argentina has left billions of dollars in default bonds as its economy went through the pandemic.
Brazil, the worst-affected country in the region, reported more than 3 million cases of Covid-19. It continues to struggle with the lack of evidence, enthusiasts and beds in extensive care sets in many regions, and inadequate knowledge has made it difficult to perceive the speed at which the virus is spreading. But economists are positive about Brazil’s outlook, according to a central bank survey, Reuters reported.
The International Monetary Fund lowered its forecast for Latin America and the Caribbean in June. In a blog post, the IMF said the region as a total could fall by 9.4% by 2020, 4 percentage points less than its April projection. The IMF expects the region to experience an expansion of 3.7% in 2021.
Ramos, of Goldman Sachs, said that while all countries have been severely affected by the virus, the recovery will “have the government’s jurisdiction to manage epidemics.” The quality and intensity of fiscal and financial stimulus provided through each country will also be the strength of the recovery, he added.
Latin America’s latest expansion of more than 2% seven years ago, he added.
“Maintaining a low-growth environment can be socially and politically destabilizing and also undermine the credibility of institutions,” Ramos said. This that countries can emerge from the poorer and more indebted pandemic, with greater inequality and potentially more social and political polarization.
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