The recovery in Ibero-America is in danger due to the risk of increasing social tensions, given the economic and employment deterioration caused by the pandemic in the region. This is how the Bank of Spain warns in its latest report on the Latin American economy published this morning. GDP decreased by 7% in Latin America and the Caribbean as a whole during 2020, a drop higher than that of other areas of emerging countries, a behavior that the supervisor attributes to «Comparatively higher levels of poverty, the lower institutional quality, the higher rate of informality in the labor market, the relative weakness of the health systems and the higher proportion of the population residing in urban areas ”. Be that as it may, the recession went from -4.1% in Brazil to -11.1% in Peru. The IMF predicts that the region will grow 4.6% in 2021 and 3.1% in 2022, thus recovering pre-crisis GDP, although Mexico and Argentina will take longer.
The Bank of Spain detects that the «Social unrest» is one of the great risks of the region. «These social tensions can be increased in degree by the notable deterioration in labor markets and the worsening of certain trends that were perceived before the pandemic, such as greater inequality in the distribution of income and wealth and increased poverty. In this sense, in 2020 poverty increased by 3.2 percentage points – to 33.7% of the population – and extreme poverty, 0.8 percentage points – to 12.5% of the population – », collects the supervisor.
This occurs at a time when they will chain the appointments with the ballot boxes. After the elections in Ecuador in February and those in Peru a couple of weeks ago, Chile, Honduras and Nicaragua have elections in November. Mexico will hold legislative elections in June and Argentina in October. “An additional element of uncertainty for the region not considered in previous years is related to the dense calendar of legislative and presidential elections scheduled for this year and next. These electoral appointments will take place in a context of broad social unrest –as the demonstrations and mobilizations of the second half of 2019 have already shown-, which could have been temporarily masked by the current health crisis situation, ‘sums up the Bank of Spain.
While improving USA Y China encourages the region, with a «return of capital flows» and «favorable» financing conditions, the Bank of Spain detects that «the recovery, however, has lost dynamism in the first quarter of 2021, as the mobility of agents ”, given the worsening of infections and the new restriction measures. On the evolution of vaccination, the supervisor highlights that “the vaccines acquired so far by the countries would be sufficient to vaccinate between 50% (Mexico) and 250% (Chile) of the population at the end of the year.”
The Bank of Spain detects that Mexico, Brazil, Chile, Peru and Colombia are countries with “material” relevance for our country, that is, «Those that may represent a greater risk due to the proportion of exposures in the Spanish banking system». Except in Mexico, the growth rates of real credit remain in positive territory in all countries, although a slowdown is observed due to a fall in the granting of loans to companies. NPLs are picking up in most of the region, although they are still at “low” levels, according to the supervisor.
“Although the region’s banking sector appears to have weathered the initial impact of the pandemic, and its vulnerability has not deteriorated excessively, the future is not without risk, as support programs expire and should the lax internal and external financing conditions are reverted “, the report states.