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The World Bank just released its June Global Economic Outlook, which shows that Latin America will be the hardest-hit region in the world after the Eurozone. The Bank estimates a 7.2% fall on the region´s GDP this year, a bleaker forecast than, for instance, UN´s ECLAC recently announced -5.3%.

 The causes. The report highlights several forces that will shape the remainder of the year.

  • The sharp fall in global commodity prices is a headwind for much of the region, and particularly for oil and gas producers given the plunge in global energy prices.
  • The abrupt slowdown in the U.S. and China disrupted supply chains for Mexico and Brazil and caused a sharp drop in exports from commodity-producing economies such as Chile and Peru.
  • The severe contraction in the United States in the second quarter has affected Central America through trade and remittance channels.
  • Tourism, on which numerous Caribbean countries and Mexico rely heavily, plummeted in the first half of the year.
  • Amid intensified global risk aversion, LAC has experienced a sudden reversal of capital flows more severe than during the global financial crisis
  • In many countries, equity market valuations have plunged and currencies have depreciated sharply.
  • Risk premia in sovereign bond markets have risen across the region, with investors differentiating according to credit risk.

The planet. Referring to the global economy, the Bank´s World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu said:

  • “This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges.”
  • “Our first order of business is to address the global health and economic emergency. Beyond that, the global community must unite to find ways to rebuild as robust a recovery as possible to prevent more people from falling into poverty and unemployment.”

Countries. The group of the hardest-hit countries begins with Central American Belize and South American Peru. Other countries in distress are Grenada, St. Lucia, and Brazil.

Real GDP Growth (% change)

Source: The World Bank

The world. Real GDP Growth (% change)

Source: The World Bank

Download the June 2020 Global Economic Prospects report.

 

 

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