Latin America is experiencing enormous inequality in the economic recovery after the pandemic. The health emergency caused the region to lose the value of the main currencies, historical inflation rates, informality and higher public debt for emerging economies, among other collateral effects.
Bounce, not growth. Although many governments tried to sell the idea that the recovery has been overwhelming in the region, it is nothing more than a rebound effect, which economists describe as a rebound in economic activity after a sharp decline, such as the recovery after a recession like the one experienced in the Covid-19 pandemic.
The world Gross Domestic Product, GDP, has not contracted since the 2008 crisis, although it showed signs of slowing down. But after the closures caused by the pandemic in the world that forced almost all economic activities to be blocked, world GDP contracted by 3.1%, affecting the most advanced economies.
A year after the arrival of the virus, the question was when the economic suffering would end and there would be signs of recovery. But it was not until mid-2021 when many restrictions began to give way and the large vaccination missions generated the confidence to speak of a return to normalcy. The economic indices were beginning to show growth rates as a result of the rebound effect.
“When the economy reopens, the apparent growth figures appear as very spectacular, but in reality they rebounded. That is, when the economy falls a lot and the moment that economy reopens, there is production, consumption, etc. But We are talking about that, about bouncing, not growing, “says Daniel Lacalle Fernández, economist, professor and investment manager.
According to the Economic Commission for Latin America and the Caribbean, Cepal, the region will grow by 5.9% in 2021, after a drop of 6.8% noted in 2020. The report bases growth mainly on external demand and the increase of the prices of the ‘commodities’ they export. Countries like Venezuela, Panama, and Peru fell at the highest rates, while others like Paraguay, Guatemala, and Nicaragua came out of the crash well.
“Of course, governments are trying to give a very optimistic image of the recovery and are using the concept of growth for something in which the vast majority of families or economic agents is nothing more than recovering part of what was lost during the pandemic” says Lacalle.
The economist adds that in Latin America “there is a lot of propaganda, of instilling optimism, but clearly and, above all, in Latin America, that rebound percentage leaves the economy very far from where it was in the fourth quarter of 2019.”
In addition, Lacalle explained to France 24 that “the problem is that GDP is the sum of public spending, plus family spending, plus investment, plus exports minus imports. This means that GDP may have recovered, but not the wealth of families or companies. ” For the Spanish economist, one could speak of a true recovery until 2023.
ECLAC documented the impact of the pandemic on the labor market in the region.
“In 2020, the pandemic unleashed the greatest crisis that the labor markets in Latin America and the Caribbean have experienced since 1950. Worldwide, the region’s labor markets were the most affected by the crisis generated by Covid-19 -the number of employed fell 9.0% in 2020- and the expected recovery for 2021 will not allow it to reach pre-crisis levels, “adds the Economic Study of Latin America and the Caribbean 2021.
Supply chain problems
But the economic reopening brought new consequences. The accelerated exit from the restrictions brought bottlenecks in the global supply chain, manufacturers and carriers could not respond efficiently to global demand, accumulated after months of closure.
The main ports of the world suffered traffic jams that put the start of the Christmas shopping season at risk and increased the price of maritime transport to historic levels, affecting the economy of the final consumer.
The United Nations Organization estimates that, if the increase in the cost of container freight continues, the prices of imports worldwide would rise by up to 11%. Most sectors and industries were affected by these global traffic jams, from manufacturers of Christmas toys, the automotive industry and cement producers.
2021, the year of bags
Although global economies were beginning to report high inflation rates, partly caused by rising prices that caused logistics delays in the supply chain, global markets had a good year.
The three main indices of the New York Stock Exchange have accumulated gains since the beginning of the pandemic. The Dow Jones rose 14% through November 30, while the Standard & Poor’s and Nasdaq were around 23%. European stocks followed the uptrend amid a turbulent year for many economies.
“At this time, the stock markets did not have the same behavior in the world. The United States and Europe reached all-time highs. They are in a bubble, all looking for less risk,” said Andrés Moreno, financial advisor and economic and stock market analyst.
When asked about the behavior of Latin America, the advisor said that the opposite happened in the markets of the region. “The Latin American stock markets had a relapse in their stock markets, the economic recovery is still not credible by some rating agencies and additionally there are political risks. Capital is migrating to more solid havens such as the US dollar and some assets,” he commented.
One of the most curious cases is the Buenos Aires stock market, Argentina, which rebounded amid a severe economic crisis and year-on-year inflation of over 50%. “Devalued currencies are attractive to foreign capital since they make the assets in the country much cheaper, and additionally they are emerging countries with higher than average growth rates,” Moreno explained.
“Stock exchanges are one of the few opportunities investors have to protect themselves from the inflationary effect, as well as crypto-assets, real estate assets, venture capital funds. All of this has a refuge factor for the investor to try to find profitability” Lacalle added.
Latin America boosted global remittances
In 2021, global remittances increased by 7.3%, reaching 589,000 million dollars and mainly motivated by growth in Latin America and the Caribbean of 21.6%, according to the World Bank.
Among the world’s top remittance recipients are India, China, Mexico, the Philippines, Egypt, Pakistan, and Bangladesh. But only Latin America received in 2021 an approximate of 126,000 million dollars, of which Mexico monopolized 42% with 52,700 million dollars.
“Migrant remittance flows have largely complemented government cash transfers in support of families who suffered hardships during the crisis,” said Michal Rutkowski, global director of the Department of Labor and Social Protection Global Practices of the World Bank.
Among the main remittance senders are the United States, the United Arab Emirates, Saudi Arabia and Switzerland.