World Bank forecasts 'modest recovery' for Latin America and Caribbean in 2021

Latin America and the Caribbean, regions severely affected by Covid-19, will have a "modest economic recovery" in 2021, the World Bank forecast Tuesday.

Even so, the rebound will be insufficient to overcome last year's historic contraction due to the coronavirus pandemic, warned the institution.

"Regional growth is projected to be 5.2 percent in 2021. This is a modest recovery after a 6.5 percent contraction in 2020, deeper than the recessions during World War I and the Great Depression," according to the latest World Economic Outlook report.

Although global economic recovery has accelerated, driven by widespread Covid-19 vaccination in more developed nations, Latin America and the Caribbean are one of the two emerging markets, along with the Middle East and North Africa, where Gross Domestic Product (GDP) will be lower in 2021 than in 2019, according to the World Bank.

For 2022, Latin America and the Caribbean’s regional growth forecast is just 2.9 percent.

"It will take a long time for much of the region to fully recover and return to pre-pandemic production levels. GDP per capita is projected to be 1.5 percent lower in 2022 compared to its level in 2019," said the report.

The comeback will be more difficult for tourism-dependent economies, especially Caribbean island nations, than for commodity exporters.

Latin America and the Caribbean account for about 30 percent of confirmed deaths from Covid-19 worldwide, and some countries face large-scale spreads of worrisome variants of the virus.

"The scars from the pandemic are severe," the report noted.

Employment levels improved in the region but did not return to pre-pandemic levels, with women, youth, and informal and low-income workers disproportionately affected by job losses.

Additionally, although social security support networks reached many individuals, income losses increased poverty and food insecurity overall in many countries.

'Still weak'

The growth projection for Latin America and the Caribbean in 2021 was revised upward since January, but the rebound "is still weak relative to other emerging market regions and developing economies," the World Bank warned.

Brazil, the country with the second-most fatalities from Covid-19 after the United States, will see its economy grow 4.5 percent this year thanks to a new round of emergency payments to households and an increase in consumption.

The economy of Mexico, also hard hit by the pandemic, will expand by five percent after a contraction of 8.3 percent in 2020. The manufacturing industry and the services sector should benefit from an increase in exports due to strong growth from the United States.

For Argentina, the World Bank expects a 6.4 percent percent rebound in 2021 after a three-year recession that dragged GDP down close to its 2009 level. In 2020, the drop was 9.9 percent.

Colombia's economic activity will grow 5.9 percent this year, while Chile will improve 6.1 percent, and Peru 10.3 percent.

Central America will have an expected growth of 4.8 percent in 2021 and 4.5 percent in 2022 due to firm remittances, aided by additional fiscal support and solid recovery in the United States, as well as increases in prices of raw materials and arrival of international tourists.

In Panama, which registered one of the most severe contractions due to the pandemic last year (minus 17.9 percent), an expansion of 9.9 percent is estimated this year.

For the Caribbean as a whole, an increase in economic activity of 4.7 percent is projected this year.

"Across the region, the durability of the economic recovery depends largely on controlling the pandemic," the World Bank stressed, noting that the full extent of large-scale vaccination will only be felt well into 2022.

The risk is that new waves of infections or the widespread circulation of new variants of Covid-19 would delay economic recovery by putting even more pressure on already overburdened health systems, the World Bank explained.

The financial institution warned: "Frustration over the rigidity and duration of mobility restrictions related to Covid-19, combined with a deep-rooted inequality of opportunities and a worsening perception of the effectiveness of governments over time, can feed social unrest".