Latin American GDP to fall by 8.1% in 2020 - IMF

Author: Al Greenwood

2020/10/13

HOUSTON (ICIS)--Latin America's GDP will likely contract by 8.1% in 2020, the worst among the major regions of the world, the International Monetary Fund (IMF) said on Tuesday in its World Economic Outlook (WEO).

The following table shows the economic forecast for Latin America and its two largest economies, Brazil and Mexico. It then compares 2019 with forecasts for 2020 and 2021. It compares the most recent forecasts with those the IMF made in its update that was published in June.

Actual Forecast Forecast vs June vs June
2019 2020 2021 2020 2021
Emerging Market and Developing Economies 3.7 -3.3 6.0 -0.2 0.2
Latin America and the Caribbean 0.0 -8.1 3.6 1.3 -0.1
Brazil 1.1 -5.8 2.8 3.3 -0.8
Mexico -0.3 -9.0 3.5 1.5 0.2
Emerging and Developing Asia 5.5 -1.7 8.0 -0.9 0.6
China 6.1 1.9 8.2 0.9 0.0
India 4.2 -10.3 8.8 -5.8 2.8
ASEAN-5 4.9 -3.4 6.2 -1.4 0.0
Emerging and Developing Europe 2.1 -4.6 3.9 1.2 -0.3
Russia 1.3 -4.1 2.8 2.5 -1.3
Middle East and Central Asia 1.4 -4.1 3.0 0.4 -0.5
Saudi Arabia 0.3 -5.4 3.1 1.4 0.0
Sub-Saharan Africa 3.2 -3.0 3.1 0.2 -0.3
Nigeria 2.2 -4.3 1.7 1.1 -0.9
South Africa 0.2 -8.0 3.0 0.0 -0.5

Source: IMF

The IMF noted that many countries in Latin America were hit particularly hard by the coronavirus and faced deep economic downturns.

The following shows the same statistics for advanced economies.

Actual Forecast Forecast vs June vs June
2019 2020 2021 2020 2021
World Output 2.8 -4.4 5.2 0.8 -0.2
Advanced Economies 1.7 -5.8 3.9 2.3 -0.9
United States 2.2 -4.3 3.1 3.7 -1.4
Euro Area 1.3 -8.3 5.2 1.9 -0.8
Germany 0.6 -6.0 4.2 1.8 -1.2
France 1.5 -9.8 6.0 2.7 -1.3
Italy 0.3 -10.6 5.2 2.2 -1.1
Spain 2.0 -12.8 7.2 0.0 0.9
Japan 0.7 -5.3 2.3 0.5 -0.1
United Kingdom 1.5 -9.8 5.9 0.4 -0.4
Canada 1.7 -7.1 5.2 1.3 0.3
Other Advanced Economies 1.7 -3.8 3.6 1.1 -0.6

Source: IMF

For the world, the IMF noted that several economies started to recover faster than originally expected. This year's recession will still be deep, but it will not be as bad as the IMF feared during its June update of the World Economic Outlook.

China's bounce back to growth was stronger than expected, and the performance of the large advanced economies was not as bad as forecasted, the IMF said. The global recovery could become even stronger in the third quarter.

The IMF attributes the stronger performance to a combination of government stimulus, low interest rates and regulations that provided money to households, protected cash flows for companies and supported credit provision. These steps prevented a repeat of the 2008-2009 financial crisis.

Still, the IMF warned that the recovery will be long, uneven and uncertain. Prospects are worsening for some emerging and developing economies, where the coronavirus is spreading rapidly.

The slower recoveries among emerging economies will "significantly worsen the prospects" of them catching up with the advanced economies. For the first time in more than 20 years, extreme poverty has increased. "The pandemic will reverse the progress made since the 1990s in reducing global poverty and will increase inequality," the IMF said.

This could have a significant effect on the petrochemical industry.

For years, chemical and plastic producers have bet that a growing number of consumers in emerging markets will join the middle class. As they become wealthier, their buying habits would change, and they would purchase more packaged goods and other items with larger amounts of plastics and chemicals. Growth rates for plastic and chemical demand would grow faster than those in advanced economies.

If the IMF forecast holds true, the petrochemical industry would have to dial back its expectations for consumption in emerging markets.

For other countries that have controlled the pandemic, they are still vulnerable to the coronavirus flaring back up, the IMF said. Given the vulnerability of the economy, policy makers need to make sure they do not withdraw stimulus programmes too early. Policy-makers have to balance the need to support growth while avoiding the build-up of too much debt.

The IMF warned that its forecasts contain an unusually large amount of uncertainty because it relies so much on public health and economic factors, all of which are difficult to predict. The IMF is assuming that the local spread of the coronavirus will fall to low levels by the end of 2022, given vaccine coverage and better treatment.

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