Damage Done. When COVID-19 hit Latin America and the Caribbean in 2020, the region was already reeling with economic and political uncertainty threatening in some fashion nearly every nation from Mexico to Argentina. The International Monetary Fund (IMF) estimated in their April 2020 projections that in 2019 the Latin American region GDP growth was flat at .02% and in 2020, with the pandemic in full force, fell to -7.0% [-7.4% according to the Inter-American Development Bank (IDB) 2020 estimates.]. According to the IDB the -7.4% drop was the largest on record for a single year and was the largest drop since 1821.
Eric Charles Parrado Herrera, chief economist of the IDB wrote of the COVID-19 pandemic’s impact on an already shaky Latin American economy: “This crisis began to unfold as countries were already facing a complex set of preexisting conditions, including low levels of productivity and simmering social discontent. Perhaps a fitting analogy to describe the situation would be that, in 2019, the region was flying with one broken engine. In 2020, its other engine also took a hit.”
There were a multitude of reasons for the COVID-19 pandemic’s inordinately painful effect on the economies of Latin America and the Caribbean. From a macro-economic viewpoint, the structure of the economies – heavily dependent on tourism or commodity exports – made them more vulnerable than countries with more mixed commercial economies. For example, commodity based economies like Argentina and Peru were hit hard, their respective GDPs down -10% and -11.1% according to IMF figures. Of course, there were many other reasons for the catastrophe – some internal and others global. Mexico, for instance, even with a strong manufacturing base saw its 2020 GDP shrink -8.2%, as the U.S. auto industry tanked and took its USMCA (replacement to NAFTA) trade partner down with it.
Tradeoffs: The 2021 Rebound
Despite the serious economic damage done by the pandemic in 2020, Latin America rebounded in 2021, as international trade picked up and commodity prices increased. The rally was largely led by exports. According to the IDB, the value of exports from Latin America grew 8.9% in the first quarter of 2021 compared to the same period in the previous year.
While the nearly 9% growth in value buoyed export numbers for the first quarter of 2021, Latin American export volumes actually fell by an estimated 2.2% over the first quarter.
The fall in export volumes underscores the fragile underpinnings of the recovery. As the IDB reported, “In the first four months of 2021, the prices of various commodities exported by Latin America rose close to historic highs. The upward trend in the price of extractive products was more pronounced, particularly in the case of iron ore (93.6%), copper (57.9%), and oil (41.7%). The performance of agricultural products was more varied: exports of soybeans grew by 60%, sugar by 27%, and coffee by 11.9%.”
Not unsurprisingly, Latin American…
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