News Americas, NEW YORK, NY, Weds. March 25, 2020: COVID-19 is spreading very quickly around the world and in the Caribbean and Latin America and negative growth is not an unlikely scenario this year says Alejandro Werner of the International Monetary Fund, (IMF).
The world economic slowdown and disruption in supply chains, the decline in commodity prices, the contraction in tourism, and the sharp tightening of global financial conditions are bringing activity to a halt in many Latin American and Caribbean countries – severely damaging economic prospects, writes Werner.
“For the region, the recovery we were expecting a few months ago will not happen,” he added.
“In the Caribbean, lower tourism demand due to travel restrictions and “the fear factor” – even after the outbreak recedes—will weigh heavily on economic activity. Commodity exporters will also be strongly impacted and a reduction in remittances is likely to add to the economic strain,” he states.
South America will face lower export revenues, both from the drop in commodity prices and reduction in export volumes, especially to China, Europe and the United States which are important trade partners. The sharp decline in oil prices will hit the oil exporters especially. The tightening of financial conditions will affect negatively the large and financially integrated economies and those with underlying vulnerabilities. Containment measures in several countries will reduce economic activity in service and manufacturing sectors for at least the next quarter, with a rebound once the epidemic is contained.
In Central America and Mexico, a slowdown in the United States will lead to a reduction in trade, foreign direct investment, tourism flows, and remittances. Key agricultural exports (coffee, sugar, banana) as well as trade flows through the Panama Canal could also be adversely affected by lower global demand. Local outbreaks will strain economic activity in the next quarter and aggravate already uncertain business conditions (especially in Mexico).
Werner says the impact will increase borrowing and borrowing costs which will expose financial vulnerabilities that have accumulated over years of low interest rates.
“While the sharp fall in the oil price is expected to benefit the oil importing countries in the region, it will dampen investment and economic activity in countries that are heavily dependent on oil exports,” Werner writes. “In the event of a local outbreak, service sector activity will likely be hit the hardest as a result of containment efforts and social distancing, with sectors such as tourism and hospitality, and transportation particularly affected.”