Adverse effects of the COVID-19 pandemic hit Latin America hard, but economies should return to observe growth in 2021. Regional GDP* is expected to decrease by 7.1% in 2020 and increase by 4.4% in 2021, although there will be large discrepancy among countries.
Despite political uncertainty and social disruptions (particularly in Venezuela and, more recently, in Peru), governments shall remain committed to a series of structural reforms (i.e., the administrative and tax reforms in Brazil or the labor/ third-party staffing regulation in Mexico), management of public spending and fiscal exposure, and simplification of the regulations. Privatizations also remain a top priority for the governments of most of the Latin America countries. This focus represents a short cash flow opportunity and will increase the region attractiveness for international investors.
Brazil expects a GDP contraction of -4.1% in 2020, but the country leverages on its global commodities exports position and already shows signs of a strong recovery in Q3/Q4 2020 and aims a 4% growth in 2021. All-time low interest rates (2% per year), a robust internal demand (boosted by pandemic-related government incentives that reached 10% of the GDP) and fast-maturing capital markets are contributing to the recovery.
Mexico’s economy has also been strongly affected by a reduction in export demand, coupled with the COVID-19 impact and lockdown measures. Oil price volatility also affected the economy. To mitigate the impacts of the pandemic, Mexico’s government took social measures, like increasing expenditures in healthcare, lending to firms and workers and providing liquidity support. Mexico’s central bank has cut basic interest rates from 7.25% in 2019 to 4.25% in 2020 and introduced measures to support the financial system. The country’s GDP is expected to decrease by 9% in 2020 and recover 4% in 2021.
Source: Itaú
(*) Latin America and Caribbean
