For millions in the United States, the historic $ 1.9 trillion package approved by Congress on Wednesday represents the lifeline they need to navigate the continuing economic crisis from the pandemic.
And, for many Latin Americans, too.
Countries with commercial and labor ties expect a great boost through the sending of remittances, their exports of raw materials and manufactured products.
The money would arrive at a critical time for the region.
Titled the American Rescue Plan, the package equates to roughly half of a year's federal budget.
Although details of exactly how the money will be spent are still lacking, it is known that low- and middle-income families will receive checks for $ 1,400.
This will boost the consumption of goods, many of them produced by Latin American countries.
It will also accelerate the transition to clean energy, which will imply an "electrification" that will require raw materials exported by the region.
The spending of the Government of President Joe Biden will be such that it has led to a change in growth expectations in that country.
Investment bank Morgan Stanley announced Tuesday that it has raised its growth outlook for Gross Domestic Product from 6.5% to 7.3% for this year.
"The stimulus is aimed at the United States and its own economy, it is not intended to be a package that has a stimulus interest outside the country," explains Axel Christensen, director of investment strategy for Latin America at Blackrock.
"That said, it does have important consequences in the region," he clarifies.
The importance of remittances
“To the extent that many people of Latino origin in the United States, perhaps, do not require [the check] to deal with complex work situations or their family finances, there is a greater probability that these remittances will go to the region at a time when they are very welcome, because it has been one of those that has suffered the most from the pandemic, ”says Christensen on the phone from Miami, Florida.
The Inter-American Development Bank (IDB) expects growth for 2021 to rebound to 4.1% in the region, before returning to a modest growth trend of around 2.5% annually.
"These shipments have a very positive effect, they can cushion the fall in activity associated with the pandemic," adds Christensen.
Mexico stands out for being the country that receives the most remittances from the neighboring country.
Despite the closure of activities between May and July, remittances grew 11% in 2020 compared to the previous year, reaching a record 40,607 million dollars - the equivalent of almost 4% of GDP.
For Central American countries such as Honduras, El Salvador or Guatemala, remittances represent between 13% and 23% of their national GDP.
Trade benefits
“That the American economy, with this, begins to show a stronger recovery means that there will be a greater demand for the products that the country buys from the region.
Certainly Mexico has an important place in that ”, assures Christensen.
For months, the Mexican authorities themselves have predicted that the success of the Free Trade Agreement that unites both countries, the T-MEC, would be the most powerful engine for the Mexican economy.
Mexico is the main commercial partner of the United States and vice versa.
Even the most recent data suggest that the manufacturing sector in Mexico, which takes a place in the global supply chains to the United States, is far ahead in its recovery than other sectors.
“The more cars or appliances manufactured or assembled in Mexico demand, it will be good news.
And so one can, depending on the type of product, see the benefits for different economies in the region, ”says the specialist.
The Mexican Foreign Trade Council (Comce) estimates that the stimulus from the Biden Administration could increase exports by up to 9% this year, compared to last year.
For Colombia, the effect will also be important, since almost 30% of its exports go to the United States, says Daniel Velandia, chief economist at Credicorp Capital in Bogotá.
In the case of Brazil, Chile and Peru, the rate is between 15% and 13%.
"In addition, we see a double effect," says Velandia, "on the one hand, there is the expected effect that higher growth in the United States ends up benefiting trade in the region and, on the other, there is the
commodities
effect
,
which will have a favorable impact. to most economies in the region ”.
Raw materials on the rise
The demand from Asian countries as well as the expectation of growth in the United States have driven the prices of raw materials, or
commodities
, so far this year.
Even before Congress passed the stimulus package, international markets were already trading oil, metals and food at higher prices, expecting greater demand from the US, explains Velandia.
This is helping countries like Chile, for example, which depends on the export of copper, to begin to recover income.
According to estimates by the Velandia team, some $ 96 billion from the Biden package will be spent on transportation and infrastructure, bringing demand for construction supplies and minerals needed to accelerate the energy transition, much of it from South America.
“Today the prices of the main
commodities
in the region are recovering even to much higher pre-pandemic levels,” says Eric Parrado, chief economist at the Inter-American Development Bank (IDB).
But so much projected growth deserves a warning for emerging countries.
Along with the money that the US government injects into the economy, its central bank, the Federal Reserve, buys assets daily in financial markets to ensure that the banking system has sufficient liquidity.
That is, so that banks and institutions continue to lend money to businesses that need it.
"Faster global growth would likely cause central banks to revise the stance of their monetary policies," says Parrado.
This would imply that, given the success of the stimulus programs, the Federal Reserve begins to reverse its asset purchase policy and raise its interest rates, which would lead investors to sell their instruments in Latin American countries to buy less risky instruments and with good returns in the US “A scenario of higher world growth coupled with a moderate correction in the financial market could lead to growth of 5.2% in Latin America and the Caribbean in 2021. If the correction in the financial market is severe , it erases most of the positive impact ”.