Post-COVID-19 recovery will be slow in Latin America

The CAF - Latin American development bank - has organised a virtual colloquium on the 'Situation and Macroeconomic Perspectives of Latin America', which analysed the different perspectives that shape the situation of the Latin American region in the current crisis and the recovery in the post-COVID-19 era, which is expected to be slow (GDP levels would recover in 2023) and whose key seems to lie in the combination of monetary and fiscal policies and structural reforms.

The symposium featured presentations by José Antonio García Belaunde, CAF's representative for Europe, Pablo Sanguinetti, CAF's Vice President for Knowledge, and Javier Pérez, Director of International Economics and the Euro Area at the Bank of Spain.

In his opening words, José Antonio García Belaunde stressed that "the world order crisis we are experiencing is not a recent event"; "it was palpable," he said, "before the pandemic". For the representative, "the impact of the pandemic has no precedent in modern history, however, we must face the crisis as an opportunity to strengthen international cooperation".

For Pablo Sanguinetti, CAF's Vice President for Knowledge, the post-COVID recovery in Latin America will be slow because "once the most critical part of the crisis is over, low consumer and business confidence may cause aggregate demand to remain depressed for longer". In addition, concluded Sanguinetti, "there is little fiscal space to stimulate demand through public spending and GDP growth could be undermined by lower private investment, deteriorating human capital and rising informality rates, and lower productivity due to poor resource reallocation". However, Sanguinetti also stressed the importance of cross-cutting policies for productivity and the fact that "there are digital startups in the region that have experienced growth", "which, he said, is a good sign". In addition, the CAF Vice President for Knowledge said that "several countries in the region have the opportunity to refinance liabilities in markets at acceptable rates, so that no widespread solvency problems are expected".

For his part, the director of the Bank of Spain, Javier Pérez, said that "the uncertainty surrounding the evolution of the economy and the probability of the worst-case scenarios set a few months ago seems to be reducing". These extreme scenarios, he said, "seem to be improving, obviously at the expense of the evolution of the vaccine and the developments of the pandemic in the short term; in fact, in the Euro Zone, due to the bad data, a new impulse has been given to the expansive monetary policy". With regard to monetary policy in Latin America, the existing margins have been used to a greater extent than on other occasions; "interest rates have fallen" highlighted Pérez and "inflation rates have not been greatly affected", an aspect which will condition the possible use of available margins in the event of adverse developments. In the case of rising inflation rates, as for example has been the case in Brazil and Mexico since April and May, this has meant that, in the case of Mexico, "more prudent policies are being followed". He indicated that the region's financial systems have held up well so far, and that vigilance is crucial to prevent the persistence of the crisis in the real economy from leading to financial crises.

After the speeches by the representatives of CAF and the Bank of Spain, there was a question time for those attending the virtual conference.