Covid-19 And Remittances in Central America & The Caribbean
The coronavirus has led to lockdowns around the world. In this article, we examine how lockdowns are affecting remittances to Central America and the Caribbean, and the outlook for remittances going forward.
- How important are remittances in the Central America and Caribbean region?
Remittances are a key component of the Central America and Caribbean economy, accounting for over 10% of GDP in many countries, and are a vital source of income for many families. The vast majority of remittances originate from the U.S.
- How has coronavirus affected remittances?
Elevated unemployment in the U.S. due to coronavirus lockdown measures has had a huge impact on remittance flows to the region. This effect has likely been magnified by the fact that U.S. immigrants from Central America and the Caribbean tend to work in lower-paid, manual and informal jobs—precisely those most affected by the lockdown. Looking at monthly data for April for selected economies shows remittances were down by double digits in annual terms.
More positively, U.S. labor market data in May was markedly better than expected as states gradually eased restrictions, with the unemployment rate edging down from 14.7% to 13.3% and the economy adding 2.5 million jobs. This suggests April could have been the low point for remittances. Indeed, in May the annual contraction in remittances in Guatemala and El Salvador in May softened markedly from April, while remittances in the Dominican Republic returned to growth.
- What is the outlook for remittances going forward?
Looking ahead, remittances should gradually recover as the U.S. economy reboots. That said, over 2020 as a whole, remittances will still be extremely weak as unemployment in the U.S. is set to stay notably above its pre-Covid level. This, coupled with domestic containment measures, will cause private consumption to contract across Central America and the Caribbean. The outlook is still highly uncertain, and a possible reinstatement of lockdown measures in the U.S. due to a second wave of cases is a key downside risk.
In addition, there is a lack of clarity over the future of the Temporary Protected Status (TPS) scheme, which currently gives certain immigrants from El Salvador, Haiti, Honduras and Nicaragua the right to live and work in the U.S. until 4 January 2021. The U.S. government has said it wishes to end TPS, although the courts are still considering whether it has the right to do so. In addition to the upcoming court ruling, the U.S. elections in November will also have a key bearing on the future of the scheme. Victory for opposition candidate Joe Biden would bode well for remittances, as he has shown willingness to offer TPS holders a path to U.S. citizenship.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.
Date: June 18, 2020
TagsOil Palladium Cryptocurrency Central America Costa Rica; GDP; Budget Exports OPEC Mexico Asian Financial Crisis oil prices Exchange Rate Forex Sub-Saharan Africa Banking Sector IMF Greece Energy Commodities Economists Economic Growth (GDP) GDP Unemployment rate TPP scotiabank Gold Precious Metals Commodities Germany Colombia Commodities CIS Countries United States Major Economies Inflation India Russia Cannabis Africa TPS United Kingdom precious metals Nigeria USA European Union South Africa Copper Trade Economic Debt Investment Iran Company News Emerging Markets Japan Draghi France Economic Crisis Tunisia Eastern Europe economic growth Italy Latin America Spain Healthcare UK Asia public debt Eurozone Consensus Forecast election Australia Ukraine Israel Agricultural Commodities Vietnam Resource Curse Base Metals Commodities interview G7 Base Metals Argentina chile Brexit Canada Turkey Budget deficit Canadian Economy Political Risk Housing Market Venezuela Portugal Bitcoin Nordic Economies China Brazil MENA Infographic Asean Euro Area Lagarde
Canada's Public spending is seen falling from the previous fiscal year’s record levels, while revenues are expected… https://t.co/9VO1xDzMYc
1 day ago
In our latest special report, we survey leading forecasters for their projections on the outlook of the plan, the i… https://t.co/XKnMRpHGyL
2 days ago
Malaysia, the Philippines, Thailand and Vietnam all saw their 2021 growth forecasts trimmed by our panel this month… https://t.co/xVVEEw1y7I
1 week ago
On 1 January, African countries opened their markets under the first phase of the African Continental Free Trade Ag… https://t.co/bMyUN6OAZM
1 week ago
In a poll earlier this week we asked which Latin American country would have the highest inflation in 2021. With ov… https://t.co/jG7sQgVfEM
1 week ago