IMF raises LatAm GDP forecast to 4.1% for 2021

Author: Janet Miranda

2021/02/08

HOUSTON (ICIS)--The Latin American and Caribbean 2021 growth forecast has been revised to 4.1% from 3.6%, based on stronger than expected performance in 2020, due to expanding vaccination efforts and a better growth outlook for the US, the International Monetary Fund (IMF) said on Monday.

The 2020 forecast real GDP growth has been updated from -8.1% to -7.4%. All GDP results were negative for 2020 as Latin American economies remain affected by pandemic lockdowns.

The following table depicts IMF’s January 2021 GDP outlook estimates for 2020 and projections for 2021/22 for various countries within the region:

Country Brazil Mexico Argentina Colombia Chile Peru
Estimated 2020 GDP* -4.5% -8.5% -10.4% -7.9% -6.3% -12.0%
Projected 2021 GDP 3.6% 4.3% 4.5% 4.6% 5.8% 9.0%
Projected 2022 GDP 2.6% 2.5% 2.7% 3.7% 3.5% 5.2%

*IMF January 2021 Outlook provided updates for estimated 2020 GDP in Brazil, Mexico and Argentina. The remaining countries figures have now been released by the IMF and updates for Colombia, Chile and Peru are reflected on the table.

Brisk recovery in Q3 2020 exceeded expectations in larger economies like Brazil, Peru, and Argentina after the sharp contraction in Q2, the IMF said.

Early indicators such as industrial production and retail sales, pointed to a continuing comeback in Q4 2020, boosted by sizeable fiscal stimulus, easy global financial conditions, and economic resilience to the crisis.

Net exports recovered to pre-crisis levels while consumption and investment are lagging.

MULTI-SPEED RECOVERY
Aggregate forecasts mask important differences across countries. Growth for this year in Brazil, Mexico, Chile, Colombia, and Peru was revised up, while in the Caribbean it was downgraded from 4% to 2.4% due to the sluggish recovery of the travel and tourism sector.

Uneven economic development amongst regional countries, political turmoil, inflation, corruption, currency devaluation and the pandemic all play a part in regional economic slowdowns.

Regional currency devaluations provide added uncertainty and affect import/export operations. As the US dollar gains relative to local currencies, demand is reduced for dollar-denominated debt and import purchases. At the same time, higher producer feedstock costs tied to international market prices lead to local price increases to maintain margins.

The following table shows year on year exchange rates:

Latin Currencies Brazil Mexico Argentina Colombia Chile Peru
Y-o-Y % change -23.6% -7.6% -44.4% -2.6% 7.3% -7.7%
February 2021 5.34 20.12 88.16 3547 734 3.64
February 2020 4.32 18.70 61.06 3457 792 3.38

RISK TO RECOVERY
The pandemic’s recent resurgence could threaten this uneven recovery as stricter containment measures in some Latin American countries slow down economic activity, the IMF said.

More than 18m people have been infected and about half a million have died in the region. The IMF estimates that over 16m people have fallen into poverty while employment remains below pre-pandemic levels.

The road to recovery hinges on how efficiently countries contain new infections as new lockdowns and social distancing measures could weigh down economic growth.

On the upside, success in vaccination and containing the pandemic could create the conditions for a faster recovery.

However, IMF expects full recovery to be a long way ahead, with the region reaching pre-pandemic levels of output only in 2023 and GDP per capita in 2025, later than other parts of the world.

“The IMF has been supporting Latin America and the Caribbean with policy advice, technical assistance and financing, providing over $66bn to 21 countries, including contingency lines. This amounts to over two thirds of the emergency liquidity support the IMF extended globally. And we stand ready to do more,” it said.

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Additional Reporting by Renato Frimm