Latin America Economic Forecast

Economic Snapshot for Latin America

May 21, 2020

The fast-spreading Covid-19 pandemic is set to push the region into its deepest recession in modern history this year

ThThe outbreak of the Covid-19 pandemic will usher in one of the worst contractions in history for the region this year. Prospects are dire amid the paralysis in domestic activity; collapse in prices for export commodities; massive job losses; pullback in remittances; rising debt vulnerabilities; and limited scope by governments to adequately respond to the crisis.

Latin America Monetary & Financial Sector News

Regional inflation declined to 6.7% in April (March: 7.5%), mainly on falling fuel prices. Subdued activity and lower non-core inflation have kept price pressures in check across the region recently. Argentina and Venezuela remain the notable exceptions, though inflation eased to a two-year low in the latter in March. Inflation is seen hovering around current levels ahead.

Major central banks in the region have axed rates to record or multi-year lows amid the Covid-19 fallout, with those in Brazil, Colombia and Mexico delivering further cuts over the past month. Monetary authorities have also launched a slew of measures to prop up liquidity in their financial systems. As a whole, regulators are seen further loosening policy ahead.

Most currencies across the region tumbled against the USD over the past month on sustained market fears over the economic fallout from Covid-19, with the Brazilian real hitting new record lows. The currencies of Colombia and Mexico held broadly stable, while the Chilean peso firmed. Currencies are expected to be battered this year, weakening more sharply than in 2019.

 

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