Latin America is facing a “lost decade”, say Eric Martin and Patrick Gillespie on Bloomberg. Incomes in the world’s “most unequal and violent region” had already fallen in recent years thanks to lower commodity prices. Now the coronavirus leaves Latin America bracing for “the deepest recession in its modern history”. Indebted governments have few fiscal tools to soften the blow. The result is that per capita GDP in 2025 may well prove to be the same as it was in 2015, says Alejandro Werner of the International Monetary Fund. Fragile democracies are being pushed “closer to their breaking points”.
The MSCI EM Latin America index fell an astonishing 45% in the first quarter, despite the fact that the coronavirus has so far hit other parts of the world far harder. The region’s dependence on commodities and global trade has prompted investors to mark down stocks dramatically. Many local currencies have slumped, with the Mexican, Colombian and Chilean pesos and the Brazilian real all close to or surpassing all-time lows against the US dollar. Unsurprisingly, Argentina is among the hardest hit. A lockdown looks set to push the economy into an even deeper recession, says Nikhil Sanghani of Capital Economics. A disorderly default on the country’s bonds, which could see recovery rates fall to as low as 30% of face value, looks increasingly likely. The 2020s may prove “another crisis-stricken decade in Argentina”.
Mexico is in trouble too. With the US now the epicentre of the pandemic, cross-border trade is drying up. Local activity will plunge too. To make matters worse, says Mary Anastasia O’Grady in The Wall Street Journal, populist president Andrés Manuel López Obrador, long dismissive of the virus, has failed to serve up a meaningful fiscal stimulus.
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