Stocks plunge as Latin America heads for lost decade

The coronavirus pandemic could leave Latin America's per capita GDP in 2025 at the same level as it was in 2015.

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.

Recommended

Who is the richest person in the world?
Entrepreneurs

Who is the richest person in the world?

Jeff Bezos, Bill Gates and Elon Musk are among the richest people in the world, but the top spot belongs to someone else.
7 Jun 2023
The building blocks for an income strategy: resilience, growth and diversification
Advertisement Feature

The building blocks for an income strategy: resilience, growth and diversification

Iain Pyle, Investment Manager, Shires Income plc
7 Jun 2023
Saving vs investing: which is better to help you make more money?
Personal finance

Saving vs investing: which is better to help you make more money?

Saving has become a more attractive option with interest rates hitting the highest levels seen in years, but if you’re prepared to take some risk inve…
7 Jun 2023
Look beyond familiar stockmarkets for reliable returns in rough times
Share tips

Look beyond familiar stockmarkets for reliable returns in rough times

A professional investor tells us where he’d put his money. This week: Giles Parkinson, managing director of global funds at Close Brothers Asset Manag…
7 Jun 2023

Most Popular

Best savings accounts – June 2023
Savings

Best savings accounts – June 2023

Interest rates have been creeping up - we look at the best savings accounts on the market right now.
6 Jun 2023
Nationwide to give £100 cash boost to customers
Personal finance

Nationwide to give £100 cash boost to customers

Nationwide Building Society is giving customers £100 as it reinvests profits. Dubbed the Nationwide Fairer Share scheme, we look at who is eligible.
22 May 2023
How much will it cost you to retire early?
Pensions

How much will it cost you to retire early?

The pre-state pension income gap means couples may need an extra £136,000 if they want to retire at 60 – can you afford to retire early?
6 Jun 2023