5 major economic challenges facing Latin America in 2021

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Although the distribution of vaccines in Latin American countries has given rise to hope, there are still risks that may impede economic recovery, and there are 5 main challenges facing Latin America and the Caribbean in 2021.

1- The evolution of the epidemic and the availability of the vaccine are uncertain
The scenario that the Economic Commission for Latin America and the Caribbean considers for its economic outlook is that the negative effects of the epidemic will improve in the first half of 2021, as there is a level of mobility higher than that recorded in the middle of 2020, according to the Argentine newspaper Clarín.

It also means that during 2021, vaccination will progress in the region. If so, the economic impact of vaccines on growth could come from the second half of 2021.

But if the forecast conditions are not met, then undoubtedly the region’s economic growth forecast could drop at 3.7% in 2021.

2- Early withdrawal from the monetary and financial stimulus policy measures
The removal of fiscal stimulus and measures taken by central banks to boost the recovery may impede economic growth with a negative impact on the region.

These are the three Latin American countries whose economies will see the largest “recovery effect” in 2021

For this reason, the organization recommends that financial aid be maintained and that monetary policy continues to ensure the availability of liquidity around the world.

3- The deterioration of the global financial conditions
The projected growth for Latin America is also largely dependent on the similarity of international financial conditions to those of the second half of 2020.

For the poorest countries, access to finance is essential. But worsening financial prospects could create a major problem for those countries that have raised their debt levels in the context of the pandemic.

Another issue that points to the possibility of a currency depreciating, given the reduced “risk appetite” on the part of investors, who in crisis situations are looking for haven in more stable currencies.

If there is a downward trend, this would put severe pressure on those countries with high levels of foreign currency debt.

4- A possible decrease in commodity prices
It is estimated that there will be a rise in commodity prices in 2021.

If this prediction is not met, the countries of South America, the net source of these products, will suffer a severe blow that will affect their income level and growth prospects.

5- Increasing social and geopolitical tensions
Increasing unemployment, poverty, and inequality could intensify underlying social tensions in Latin American countries and affect their economic activity.

These internal tensions are exacerbated by geopolitical conflicts, including technological and trade frictions between countries.

“The sharp drop in income leads to social tensions and challenges to fiscal policy,” says Daniel Teleman, an economist at the Economic Commission for Latin America and the Caribbean.

“The sharp drop in income leads to social tensions and challenges to fiscal policy,” Tetelman argues.

For this reason, he adds, “governments must make a significant effort to maintain support and thus mitigate the social impacts of the epidemic.”

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