A mountain to climb

Hard-hit Latin American economies must solve political and social issues to reactivate successfully.

Latin America remains an epicentre of the COVID-19 pandemic – despite some of the longest and strictest lockdowns in the world – and the end is not yet in sight. To date, the region has suffered nearly 400,000 deaths from approximately 9 million cases.

Before the pandemic, the International Monetary Fund forecast 1.6% growth for the region but by June this had collapsed to a 9.4% contraction, making it the hardest-hit region in the world.

These health and economic crises were in large part unavoidable for a region with developing economies, institutions, resources and infrastructure but developed world health problems. Contributing factors have been analysed in detail elsewhere but include: low healthcare expenditure, political and social instability, large informal sectors with no social security, economic exposure to lockdown-sensitive industries and a high prevalence of COVID-19 co-morbidities such as hypertension, diabetes and obesity.

“Activity will not return to pre-crisis levels until 2022 or later and a full recovery will take longer.”

CIO of an Andean asset manager

Our sources currently expect some economic improvements in 2021 but believe a full recovery will take many years, “The expected recovery for 2021 is misleading – we will be moving off a low base – activity will not return to pre-crisis levels until 2022 or later and a full recovery will take longer,” believes the CIO of an Andean asset manager. This view is shared by a Peruvian economist, “Recovering what was lost in the pandemic is going to take us 5 to 8 years.”

Political instability also persists in many Latin American countries and will take considerable time and effort to resolve, “The main challenge continues to be the political environment – there is government change in Bolivia and elections are coming in Ecuador, Chile and Peru in 2021,” reports the Head of Research at an Andean Bank.

“The main challenge continues to be the political environment.”

Former Minister of Economy

Social issues also need to be resolved across the region, “[The pandemic] has increased inequality felt by informal workers, women and young people. Fixing these issues will take time,” explains a former Minister of Economy.

Are there are opportunities in the region? “Infrastructure projects will now require private investment as there is even less public money,” explains an executive at a US investor in the region. In addition to infrastructure, “Financial technology is a huge opportunity in all Latin America countries,” reports Peruvian Economist.

The macroeconomic investment landscape in Latin American looks difficult but when the pandemic subsides a targeted approach with careful risk management could deliver strong returns.

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