Latin America to Rebound from Worst Recession in Two Centuries

[Judi Lynn]

Eric Martin, Bloomberg News

(Bloomberg) -- Latin America faces risks as its economy rebounds from the worst downturn in two centuries, with better fiscal policy needed to ensure a sustained recovery, according to the region’s development lender.

Output will grow 4.1% this year as vaccine rollouts proceed and businesses continue to open, the Inter-American Development Bank said in forecasts released Saturday at its annual meetings. The bank estimates that the 2020 contraction was 7.4%, the most for any single year since 1821, when some of Latin American nations were fighting for their independence from Spain.

The region remains at risk for a more muted rebound where weaker growth in the U.S. and Europe, slower vaccine application and new virus strains limit the 2021 expansion to 0.8%, according to the Washington-based institution. That scenario would see a return to recession in 2022 before growth in 2023 –- a “W” shaped recovery.

Latin America faces high unemployment, which is set to increase extreme poverty, and health systems stretched to the breaking point. With just 8% of the world’s population, the region has accounted for about a quarter of all coronavirus deaths.

“In 2019, the region was flying with one broken engine,” said Eric Parrado, the IDB’s chief economist. “In 2020, its other engine also took a hit. The challenge we now face is to fly this aircraft to safety, rescue the passengers, and prepare for the necessary repairs.”

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