COVID-19 takes heavy toll on Caribbean — UN report

The United Nations World Economic Situation and Prospects (WESP) mid-2020 report says the coronavirus (COVID-19) pandemic has taken a heavy toll on the countries in Latin America and the Caribbean (LAC).

The United Nations headquarters in New York City, USA.

“As the virus continues to spread across the region, domestic lockdowns, along with a collapse in global demand, lower commodity prices and massive financial outflows, are severely undermining economic activity,” said the report, which also noted that against the backdrop of the devastating pandemic, the global economy is projected to contract sharply by 3.2 per cent this year.

The global economy is expected to lose nearly US$8.5 trillion in output over the next two years due to the COVID-19 pandemic, wiping out nearly all gains of the previous four years. The sharp economic contraction, which marks the sharpest since the Great Depression in the 1930s, comes on top of anaemic economic forecasts of 2.1 per cent at the start of the year.

The report estimates that gross developed product (GDP) growth in developed economies is expected to plunge to minus five per cent this year.

“A modest, 3.4 per cent growth – barely enough to make up for the lost output – is expected in 2021.”

– The United Nations World Economic Situation and Prospects mid-2020 report

“World trade is forecast to contract by nearly 15 per cent in 2020 amid sharply reduced global demand and disruptions in global supply chains,” said the report.

Regarding the LAC, the report notes that according to the baseline forecast, GDP is projected to shrink by 5.4 per cent in 2020—the largest contraction in the region’s history.

It said average per capita income is expected to decline to the lowest level in more than a decade and with unemployment rising sharply, large numbers of people will fall into poverty.

Hotels line the beach of popular vacation spot Grand Cayman, which is among those hit by travel restrictions due to COVID-19.

“The region is expected to return to moderate growth in 2021, supported by a global economic recovery. Assuming the spread of the virus is contained in the course of 2020 and policy actions are effective in mitigating the crisis, the region’s GDP is projected to grow by 3.1 per cent in 2021.”

But the report noted that the crisis has affected the region in multiple ways and that in response to the pandemic, almost all countries adopted widespread containment measures.

It said several governments imposed partial or complete lockdowns and that ‘the negative impact of such measures on economic activity has been compounded by external factors, including slowing global demand, lower oil and metal prices, disruptions to global value chains, and falling remittances and tourism revenues.

A tractor hauls loads of sugar cane in Belize. (File photo)

“While the region’s main foreign income sources have all taken a hit, access to international financing has sharply deteriorated amid heightened risk aversion and flight to safety among investors.”

The report notes that the economies in the Latin America and the Caribbean region have limited capacity to offset these multiple shocks through monetary and fiscal policies.

“Many countries entered the crisis in already weak positions, with high levels of debt, sizeable external financing needs and subdued growth prospects. Moreover, social discontent and political unrest have been widespread. Central banks have responded swiftly to the crisis by lowering policy rates and providing emergency liquidity support.

“At the same time, governments have implemented a wide range of support measures to mitigate the impact of the crisis. With few exceptions …the stimulus packages are smaller than in developed economies and more targeted at vulnerable households and firms.”

The report notes that a broad-based and robust economic recovery in the region will remain elusive unless fiscal space is expanded.

“This requires strong international cooperation and support from multilateral organisations, including suspension of loan payments, provision of low interest-rate loans and debt relief,” the report added.

Chief of the Global Economic Monitoring Branch and lead author of the report, Hamid Rashid, said “the lesson we learnt from the last crisis is that fiscal and monetary stimulus measures do not necessarily boost productive investments. Governments must encourage businesses receiving its financial assistance to invest in productive capacities.

“This is a must for protecting decent jobs and preventing further rise in income inequality,” he added.