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.