Latin America Economic Forecast

Economic Snapshot for Latin America

November 18, 2020

Latin America’s economy is poised to recover in 2021

After logging its worst recession in recent history this year due to the Covid-19 blow, Latin America’s economy is poised to recover in 2021 as foreign demand and domestic activity revive. That said, significant risks lie ahead, most notably subdued household incomes, concerns over enormous fiscal gaps, uncertainty regarding the pandemic’s trajectory, and social upheaval.

Latin America Monetary & Financial Sector News

Regional inflation climbed to a preliminary 6.2% in October (September: 5.9%), primarily driven by stronger price pressures in Brazil. Notably, in Colombia, inflation declined to its lowest in over 50 years amid weak consumer demand. After a noticeable drop this year due to output gaps and low oil prices, regional inflation is seen rising in 2021 in line with the economic recovery.

The central banks of Brazil, Chile, Colombia, Paraguay and Uruguay held policy rates stable at multi-year lows in recent weeks in a bid to further support their economies amid ongoing Covid-19 woes. Meanwhile, Argentina’s monetary authority loosened its stance. Policymakers overall are expected to maintain relatively expansionary stances next year.

Currency performance across the region was mixed in recent weeks. Although some currencies like the Peruvian sol and Uruguayan peso weakened against the USD, others such as the Brazilian real and Mexican peso benefited from upbeat sentiment over a likely Joe Biden presidency in the U.S. Overall, currencies are projected to depreciate next year, albeit only slightly.

 

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