From strict confinements, Latin American countries have moved to intermittent restrictions, forcing the passage of a new economic normality.
The region has suffered the death of one and a half million people due to covid-19.
Poverty increased, inflation rose, work changed and with it the future outlook.
In this context, the economic recovery is taking place, different in each country but with a common denominator: the positive impact of the fiscal stimuli implemented by the governments.
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September brought data on the gross domestic product (GDP) for the second quarter of the year, which allows us to portray the recovery of the economies compared to their pre-pandemic levels.
The results show that those who invested in fiscal stimuli to help their unemployed population are ahead.
Those who are not, are not only lagging behind, but also lost potential future growth, the analysts consulted agree in pointing out.
"We are exactly one year after the recovery process began," says Alfredo Coutino, regional analyst at Moody's Analytics. Most of the Latin American countries began their economic ascent in the third quarter of last year and it was in July that the majority of the region gave the flag of reopening of the economies. “And what we see is that there are two groups of countries: in the first one is Chile, Brazil and Peru that are already at their GDP level close to where they were before the pandemic. In the second group are the most backward countries, including Mexico and Colombia ”. The GDP of Brazil, Chile, Mexico and Argentina, combined, represents 66% of the total GDP of the region.
What these three winning countries have in common, explains Eugenio Sánchez, an economist and data analyst, is that they invested a large amount of resources in fiscal stimulus. These were spent through a combination of programs, direct transfers to the poorest families, business loans, tax breaks and unemployment benefits - this, in particular, a strategy that allowed employees to return to work normally during the reopening, preserving the company-employee relationship.
"It is worth understanding what the determinants of long-term growth are, which in this case is the workforce," says Sánchez on the phone from London. “The people incorporated in the labor market and the accumulated capital, together, determine the installed production capacity of a country and, therefore, its long-term growth. So when there is a situation like the pandemic in which we force the economy to stop in order to achieve social distancing and we force people to stay at home, that brings with it a lot of destruction of capital ”.
Among the largest economies in Latin America, Mexico is the country that allocated the least additional spending measures as a percentage of GDP.
According to the International Monetary Fund (IMF), Mexico spent 0.7% of GDP on additional measures to contain the damage of the pandemic and refused to make tax exemptions.
Meanwhile, Chile allocated 14%, Brazil 9.2%, Peru 7.8%, Colombia 4.7%, Argentina 4.5%.
Chile, for example, spent many resources on unemployment insurance and partially subsidized payroll to prevent companies from going bankrupt and jobs from being lost.
Brazil also increased public spending.
The result is a faster recovery.
Caution 'too much'
"Mexico is fortunate to have such a large economy by its side and that the United States is implementing such a large stimulus, and it will benefit, but Mexico would have been better if the Government had implemented a greater fiscal stimulus," says Luciano Rostagno, strategist of markets for Latin America from Banco Mizuho do Brasil. US authorities this week cut their growth forecast for this year from 7% to 5.9%. "Mexico has been cautious of spending too much, and for this reason the economy is suffering from the pandemic."
The consequences of this decision are already reflected in recent data, but will also be seen in the future.
"The country lost potential growth," adds Rostagno, referring to the estimate of how much an economy can grow without suffering inflation problems, "and the reason is that it did not act to cushion the shock of the pandemic.
This affected business sentiment, investments were postponed and the potential growth rate was lost ”.
Protests and inflation
Colombia's state support program boosted the economy until it ran into massive protests that turned violent and cost dozens of lives.
The disruptions generated, considering that the protests lasted for months, impacted the country's economy, experts agree.
Argentina, for its part, has experienced inflation above 50% in the last 12 months, which has limited growth in that country.
“Argentina continues to have the same structural problems for 3 years,” says Coutino, “it has been in recession since then and began a recovery process after the pandemic, in the third quarter of last year, but it was more due to a rebound. arithmetic that was presented in practically all the economies of the world ”.
To future
It is clear that there is significant positive growth in Latin America this year, says Coutino. Now where is it moving? Our projections allow us to anticipate that after the economic rebound of 2021, Latin America is already on the way to a phase of economic expansion ”. Chile, Brazil and Peru will continue to grow this year beyond where their GDP level was before the pandemic, while the other economies, such as Mexico and Colombia, could expand beyond the pre-pandemic level in 2022.
Expectations of high inflation around the world have led some central banks to raise their interest rates.
"We expect this to provide support for the region's currencies in the short term," Rostagno says, "however, in a longer-term perspective, politics will continue to be a headwind."
The region faces a busy election season this and next year and the pandemic has increased discontent with governments.
“This increases the risk of populist policies,” says Rostagno, “Argentina, Chile and Colombia are the next to face challenging elections ahead.
In Brazil, the general elections are still a year away, which gives time to improve ”in terms of political uncertainty.