Peru, Argentina, Mexico: the economies most affected by the crisis

The International Institute of Finance (IIF), the international banking think tank, worsened its projections for the region to 8.4% for this year, that is, a deeper and longer recession than that of the 2009 crisis. Among the countries that will bear the brunt, it identified Peru, Mexico and Argentina as the economies that will fall between 10% and 15%.

Latin America will end up being one of the most affected regions in economic terms by the pandemic, mostly because of the scarce social protection network, the high urban population density, and the high social inequality that prevents large portions of society from staying in their homes and sheltering from the virus.

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Instead, by 2021 they expect a moderate recovery with a rebound of 4.1 percent of the region's GDP with Chile, Colombia and Peru leading the recovery. Even so, "we do not project that GDP will recover to pre-pandemic levels before 2022-2023 in most countries," the IIF economists said.

The impact on the region was mixed: "For example, Brazil's less restrictive measures and more ambitious fiscal stimulus package led to less deterioration of the GDP in the context of a more severe outbreak of the virus in the first half of the year. Meanwhile, in Mexico activity collapsed despite placing less rigid restrictions on mobility than other countries such as Peru, Colombia and Argentina, but with rather more modest stimulus policies to counteract the collapse in private demand," assessed the IIF.

Although the rebound was noticeable in almost all the countries during the third quarter, those that had some kind of cushioning mechanism to contain the fall in aggregate demand are in a better position to sustain it, while others that already accumulated strong macroeconomic imbalances will find it more difficult to continue the recovery. The aggressive monetary expansion developed by the region's central banks helped to avoid further falls in activity, the report noted.

"Even so, sustaining this policy has been increasingly challenging, given the need to prevent permanent damage to the macroeconomy and other destabilizing effects," they added.

"Peru has experienced the greatest rebound, in part due to its unparalleled collapse in the first half of the year. High-frequency indicators suggest that the recovery is losing strength in some countries such as Argentina while remaining relatively robust in others such as Chile. For Brazil, Chile and Peru, short-term forecasts for the level of activity improved, in part, thanks to strong stimulus policies. In Chile and Peru, support included a reform to allow for early pension retirement, which boosted consumption. In contrast, the outlook for Mexico is weak between limited fiscal and monetary policy, overshadowed by U.S. manufacturing projections, and the prevalence of doubts about policy direction".