Addressing the growing impact of COVID-19 with a view to reactivation with equality: New projections by Publicaciones de la CEPAL, Naciones Unidas

Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections 15 July 2020 Alicia Bรกrcena Executive Secretary Economic Commission for Latin America and the Caribbean (ECLAC)

Messages 1. The global economic downturn is being exacerbated by unprecedented synchronization 2. International financial markets recently decoupled from the real economy 3. Financial risks persist in emerging economies 4. The crisis is intensifying in the region: the worst contraction in the last 100 years 5. Lost decade: per capita GDP in 2020 will return to 2010 levels

6. Rise in unemployment, poverty and inequality requires more social protection 7. Fiscal and monetary policies to mitigate the pandemicâ&#x20AC;&#x2122;s effects and support reactivation 8. Complementarity among macroeconomic, social and productive policies 9. National efforts require greater international cooperation with access to financing on favourable terms 10. Promoting equality is fundamental to controlling the pandemic and ensuring a sustainable economic recovery

Alicia BĂĄrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

The global economy will undergo the deepest recession since the Second World War: per capita GDP will shrink in 90% of countries SELECTED REGIONS AND COUNTRIES: GDP GROWTH RATES, 2018–2020a (Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Bank, Global Economic Monitor (GEM) [online database] https://datacatalog.worldbank.org/dataset/global-economic-monitor [accessed on: June 2020]; Organization for Economic Cooperation and Development (OECD), OECD Economic Outlook, Paris, OECD Publishing, June 2020: European Central Bank(ECB), “Eurosystem staff macroeconomic projections”, June 2020 [online] https://www.ecb.europa.eu/pub/projections/html/index.en.html; and United Nations, World Economic Situation and Prospects as of mid-2020, New York, 2020. a The figures for 2020 are projections. b India cover the fiscal year, which begins in April and ends in March the following year.

Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Decoupling the improvement in global financial markets from the crisis in the real economy FINANCIAL STRESS INDEX (Office of Financial Research)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Office of Financial Research (OFR), “OFR Financial Stress Index” [online] https://www.financialresearch.gov/financial-stress-index/. Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Capital outflows from emerging economies were reversed in April NON-RESIDENT PORTFOLIO FLOWS TO EMERGING MARKETS, JUNE 2017–JUNE 2020 (Billions of dollars)

Source: Central Reserve Bank of Peru, on the basis of data from the Institute of International Finance (IIF). Note: Data for June 2020 refer to the estimated value up to 9 June 2020. Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

External and internal shocks have intensified Internal shocks • Countries of the region are the epicentre of the pandemic. • Some government have begun to ease containment measures; others have had to maintain or tighten them. External shocks • The global economy contracted more than expected and in a synchronized manner: increasing negative external impacts on the region. Fall in commodity prices and terms of trade

Drop in the goods trade

Reduction in remittances

Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Drop in demand for tourism services

High uncertainty and ongoing financial vulnerability

Collapse in world trade in goods, could fall by up to 32% YEAR-ON-YEAR CHANGE IN THE VOLUME OF GLOBAL GOODS TRADE (2005–2020)a (Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Netherlands Bureau of Economic Policy Analysis (CPB), World Trade Monitor [online database] https://www.cpb.nl/en/worldtrademonitor; World Trade Organization (WTO), “Trade forecast press conference”, 8 April 2020 [online] https://www.wto.org/english/news_e/spra_e/spra303_e.htm. a The figures for 2020 are projections calculated by WTO in April 2020. Note: The figures are calculated on the basis of a seasonally adjusted index. Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

The collapse in tourism will hit the Caribbean economies the hardest LATIN AMERICA AND THE CARIBBEAN: CONTRIBUTION OF THE TOURISM ECONOMY TO GDP AND EMPLOYMENT, 2019 (Percentages)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from the World Travel and Tourism Council (WITC).

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

The value of the region’s exports will fall by 23% and lower commodity prices will have a negative effect on South America’s terms of trade VARIATION IN ANNUAL AVERAGE COMMODITY PRICES, 2016–2020a (Percentage change)

LATIN AMERICA AND THE CARIBBEAN: EFFECTS OF COVID-19 ON EXPORTS OF GOODS, PROJECTION FOR 2020 (Percentage change)

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from Bloomberg, The Economist Intelligence Unit, Buenos Aires Grain Exchange, Chilean Copper Commission (COCHILCO) and Agrarian Research and Policy Office of Chile (ODEPA). a Data for 2020 are projections. Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

The sudden stop in financial flows to the region in the first months of 2020 was reversed LATIN AMERICA: FINANCIAL FLOWS TO THE REGION (Index=100 at the start of the episode, t=0)

LATIN AMERICA (SELECTED COUNTRIES): SOVEREIGN BOND ISSUES IN INTERNATIONAL MARKETS Date

26 Mar 2020 16 Apr 2020 15 May 2020 22 Apr 2020 23 Apr 2020 6 May 2020 3 Jun 2020 1 Jun 2020 24 Jun 2020 20 Jun 2020

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Bloomberg data and methodology.

Country

Panama Peru Guatemala Mexico Paraguay Chile Brazil Colombia Uruguay Honduras

Amount (millions of dollars) 2 500 3 000 1 200 6 000 1 000 2 000 3 500 2 500 2 000 600

Rate

4.50% 2.70% 5.80% 5.00% 4.95% 2.50% 3.64% 3.80% 5.60%

Excess demand (number of times) 3.00 8.00 6.75 4.75 7.00 5.85 5.15 5.30 -

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Latin Finance and Bloomberg data.

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

The drop in remittances will affect the poorest countries the most LATIN AMERICA AND THE CARIBBEAN: FAMILY REMITTANCE FLOWS AS A PERCENTAGE OF GDP AND PER CAPITA GDP IN DOLLARS AT CURRENT PRICES, 2018

โ ข The economic contraction in the United States and Europe is affecting sectors that employ more migrants (services and construction)

Source: ECLAC, on the basis of World Development Indicators (WDI), World Bank.

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Updated projections for Latin America and the Caribbean

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

The crisis is worsening and ECLAC has revised its estimates down LATIN AMERICA AND THE CARIBBEAN: PROJECTION OF CHANGES IN GDP AND EVOLUTION OF THE PANDEMIC

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Regional GDP is expected to decline by 9.1% in 2020 LATIN AMERICA: GDP GROWTH PROJECTIONS, 2020a (Percentages)

THE CARIBBEAN: GDP GROWTH PROJECTIONS, 2020 (Percentages) 56.4 //

-18

// -18.0

Source: Economic Commission for Latin America and the Caribbean (ECLAC) a Central America includes Cuba, the Dominican Republic and Haiti.

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

A lost decade:

the region’s per capita GDP in 2020 will be equivalent to the level seen in 2010 LATIN AMERICA AND THE CARIBBEAN: PER CAPITA GDP (INDEX: 1990=100)

230 210 190

2010

170 150 130 110 90

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

The unemployment rate is expected to climb to 13.5%, affecting 44 million people LATIN AMERICA: GDP GROWTH AND CHANGES IN THE UNEMPLOYMENT RATE (Percentage points)

LATIN AMERICA: ECONOMICALLY ACTIVE POPULATION, UNEMPLOYED PERSONS AND UNEMPLOYMENT RATE (Millions of people)

2020 Economically active population

326.9

Number of unemployed persons

44.1

Change in number of unemployed persons

18.0

Unemployment rate

13.5%

Increase of 5.4 percentage points in the unemployment rate compared to 2019 (8.1%). Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of official figures. Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Poverty and extreme poverty rates are expected to rise to 37.3% and 15.5%, respectively LATIN AMERICA (18 COUNTRIES): PROJECTIONS OF PEOPLE LIVING IN POVERTY IN 2020 (Percentages)

ยง The number of people living in poverty is expected to rise from 186 million to 231 million. ยง The number of people living in extreme poverty is expected to rise from 68 million to 96 million. Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Household Survey Data Bank (BADEHOG). a Projections. B Preliminary projections based on the assumed impact on employment and labour income for the different production sectors. Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Different impacts on Latin American countries LATIN AMERICA (17 COUNTRIES): PROJECTIONS OF THE POPULATION LIVING IN EXTREME POVERTY AND POVERTY, 2020 (Percentages)

Extreme poverty

Argentinaa Bolivia (Plurinational State of) Brazil Chile Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Panama Paraguay Peru Uruguay

2019b 3.8 14.3 5.5 1.4 10.3 3.4 4.5 7.6 7.4 19.8 18.7 11.1 18.0 6.5 6.2 3.7 0.1

2020c 6.9 16.8 9.8 3.4 14.3 5.1 6.7 12.7 11.9 22.7 22.2 17.4 22.8 8.5 6.6 7.6 0.3

Poverty

Percentage point increase

3.1 2.5 4.3 2.0 4.0 1.7 2.2 5.1 4.5 2.9 3.5 6.3 4.8 2.0 0.4 3.9 0.2

2019b 26.7 32.3 19.2 9.8 29.0 16.5 20.3 25.7 33.7 48.6 54.8 41.9 47.1 14.6 19.4 16.5 2.9

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Household Survey Data Bank (BADEHOG). a Urban areas. b Projections. c Preliminary projections based on the assumed impact on employment and labour income for the different production sectors..

2020c 37.5 36.1 26.9 15.5 34.1 20.5 24.7 32.7 40.2 51.6 59.0 49.5 52.7 17.5 20.9 25.8 5.3

Percentage point increase

10.8 3.8 7.7 5.7 5.1 4.0 4.4 7.0 6.5 3.0 4.2 7.6 5.6 2.9 1.5 9.3 2.4

Greater inequality in the distribution of income in all countries LATIN AMERICA (15 COUNTRIES): GINI INDEX, 2018

LATIN AMERICA (17 COUNTRIES): PROJECTED VARIATION IN THE GINI INDEX, 2020

Between 1.0% and 1.9% Between 2.0% and 2.9% Between 3.0% and 3.9%

Between 4.0% and 4.9% Between 5.0% and 5.9%

6.0% or more

Guatemala Paraguay Honduras Nicaragua Bolivia (Plurinational State of) Costa Rica Dominican Republic Panama Colombia Uruguay Brazil Chile El Salvador Mexico Argentina Ecuador Peru

• The Gini index for the region is expected to rise by 4.9 percentage points from 2019 to 2020. • The increase is expected to vary between 1% and 8% depending on the country. Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of Household Survey Data Bank (BADEHOG).

In light of the vulnerability of 80% of the population, universal policies are required LATIN AMERICA (18 COUNTRIES): POPULATION BY PER CAPITA INCOME STRATA, 2019 AND 2020 (Millions of persons)

• Sharp deterioration in the middle strata. • Eight out of 10 people in the region (491 million) will live on income of up to three times the poverty line: US$ 500 per month. • More than 33 million people will slip from the middle strata to the low-income strata.

Source: Economic Commission for Latin America and the Caribbean, on the basis of Household Survey Data Bank (BADEHOG).

Impact on jobs and businesses § Possible closure of more than 2.7 million formal businesses with the loss of 8.5 million jobs, not including jobs shed by firms that are able to keep operating. § Impacts will vary significantly by economic sector and type of company. § Microenterprises (more than 2.65 million closures) and small enterprises (almost 100,000 closures) will be most affected owing to their strong presence in the sectors that will be hit hardest by the crisis (retail sales, hotels and restaurants, and other services). Source: Economic Commission for Latin America and the Caribbean (ECLAC). a Estimate based on a 9.1% drop in GDP and a population of 203.9 million living in poverty in 2020. The administrative costs associated with the transfers have not been considered. [Author, please insert the “a” beside the corresponding estimate]

Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Integrating medium-term macroeconomic, social and productive policies to bolster reactivation

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Eight ECLAC proposals 1. 2. 3. 4. 5. 6. 7. 8.

An emergency basic income in the meantime for the entire population living in poverty. An anti-hunger bonus for the entire population living in extreme poverty. Universal, progressive and distributive social policies. Extended payment deadlines and grace periods for loans to micro-, small and medium-sized enterprises. Payroll co-financing. Conditional support for large companies in strategic sectors at risk. Expansionary fiscal and monetary policies in a context of macroeconomic stability. Cooperation for financing on favourable terms.

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

An emergency basic income to meet basic needs and support consumption of households living in poverty LATIN AMERICA AND THE CARIBBEAN (18 COUNTRIES): ESTIMATED ADDITIONAL COST OF MONETARY TRANSFERS EQUIVALENT TO THE POVERTY LINE TO FACE THE IMPACT OF THE COVID-19 PANDEMIC, BY DURATION OF BENEFITa (Percentages of GDP)

PEOPLE LIVING IN POVERTY

• Several countries have increased the duration, coverage and amount of emergency transfers to protect the income of the poor and vulnerable. • Emergency spending on targeted transfers in cash and in kind for six months: 1.3% of GDP. • Emergency basic income for the entire population living in poverty in 2020: transfer equivalent to the poverty line (US$ 143 at 2010 prices) for six months at a cost of 2% of regional GDP and 3.6% if extended to nine months.

Source: Economic Commission for Latin America and the Caribbean (ECLAC). a Estimate based on a 9.1% drop in GDP and a population of 203.9 million living in poverty in 2020. The administrative costs associated with the transfers have not been considered.

Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

An anti-hunger grant as a complement to the emergency basic income, for those living in extreme poverty § The crisis will erode the food security of millions of people. § ECLAC and FAO have proposed an anti-hunger grant to complement the emergency basic income, for the entire population living in extreme poverty. § The amount of each grant would be equivalent to 70% of the regional extreme poverty line (US$ 67 at 2010 prices). § The total cost of the grant has been re-estimated at US$ 27.1 billion, equivalent to 0.52% of regional GDP. § Depending on the national or local situation, the grant could take the form of a cash transfer, food baskets, food vouchers or school feeding programmes. Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Synergies between support for businesses and social protection measures • The emergency basic income, the anti-hunger grant, and the support for firms and employment form a structured package of measures. • The emergency basic income and the anti-hunger grant aim to protect vulnerable segments of the population and soften the fall in demand, thus mitigating the negative impact on businesses and employment. • Measures to support firms can save jobs, preventing poverty and extreme poverty from increasing, and consequently reducing the cost of social measures.

The combined cost of the package of measures is lower than the total cost of implementing each of them individually Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Integrating macroeconomic policies Making progress on equality is crucial to controlling the pandemic and to a sustainable economic recovery

• Expansionary fiscal policies that support structural spending • Expansionary monetary policy, drawing on non-conventional instruments • Access to financing for middle-income countries on favourable terms Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Fiscal measures are being announced in a context of lower tax revenues and higher spending requirements in the short term LATIN AMERICA (17 COUNTRIES): FISCAL EFFORT OF MEASURES TO ADDRESS THE CORONAVIRUS (COVID-19) PANDEMIC (Percentages of GDP) Spending, tax relief and liquidity measures to mitigate the impact of the emergency

Examples of additional measures announced recently (as at 6 July) with a more distant and better defined time horizon

ยง Chile announced US$ 12 billion (4.8% of GDP) ยง Peru announced US$ 1.95 billion (0.9% of GDP) ยง Paraguay announced US$ 2.5 billion (6.7% of GDP)

Source: ECLAC, on the basis of official figures. The fiscal effort is calculated on the basis of expenditure measures (reallocations and exceptional expenditure), tax relief and liquidity. State credit guarantees are not included. Updated on 6 July 2020.

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Announced fiscal measures to strengthen health systems, support household income and protect productive capacity Fiscal measures

Strengthening the health system

Supporting household income

Protecting productive capacity

Tax relief

- Temporary reductions in value added tax (VAT) - Elimination of import tariffs

- Temporary reductions in VAT on basic necessities - Income tax payment facilities - Fast-tracked tax refunds

- Payment facilities for direct taxes or reduced rates - Temporary VAT reductions or exemptions in strategic sectors

Public expenditure

- Recruitment - Special grants for health personnel - Purchases of medical supplies - Investment in infrastructure - Transfers to subnational governments

- Unconditional special grants - Strengthening of transfer programmes - Increases in the amount or coverage of unemployment insurance - Consumption subsidies - Food baskets

- Subsidies for payrolls or purchases of inputs

- Soft loans

- Soft loans - State credit guarantees - Capital injections

Governmentbacked liquidity support

Alicia Bรกrcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Fiscal policy to build back better • Greater fiscal efforts will be needed to mitigate the impact of the pandemic, through more financing on favourable terms. • Promote an economic reactivation: avoid austerity measures and maintain and pursue fiscal stimulus. • Expenditure will be structural. The emergency expenditure and the spending on reactivation are therefore complementary and not substitutes for each other. • Make tax systems more progressive and efficient: evasion (6.1% of GDP), tax expenditure (3.7% of GDP), low tax receipts (23% of GDP) and regressive taxes. • Make expenditure more efficient, effective and equitable • New social and fiscal pacts • Building back with equality: towards welfare states. Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

The magnitude of the crisis has led to conventional and non-conventional monetary actions that must be maintained Goals: • Mitigate the impact of the crisis by expanding lending to households and businesses • Facilitate financing of fiscal action • Support financial institutions and debtors by extending repayment periods • Safeguard macrofinancial stability: • Prevent a banking and credit crisis • Reduce the external impact

Actions: • Cut interest rates and expand monetary aggregates • Relax capital adequacy ratios and reserve requirements • Increase credit lines with international financial institutions • Inject liquidity by buying public and private securities • Complement use of reserves with other financial instruments • Macroprudential rules have been adjusted to promote macrofinancial stability

Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Historically low inflation facilitates an expansionary monetary policy LATIN AMERICA AND THE CARIBBEAN: NUMBER OF COUNTRIES WITH A 12-MONTH VARIATION IN THE CONSUMER PRICE INDEX (CPI) OF LESS THAN 3%, 2006–2020a (Number of countries)

25 20 16

15 9

17 17 17

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2007

2006

2008

0 2020

LATIN AMERICA AND THE CARIBBEAN: 12-MONTH VARIATION IN THE CONSUMER PRICE INDEX (CPI), WEIGHTED AVERAGE, JANUARY 2016–OCTOBER 2020

In most countries, the announced credit measures amount to less than 4% of GDP, but… LATIN AMERICA AND THE CARIBBEAN (19 COUNTRIES): MAXIMUM AMOUNT ANNOUNCED FOR CREDIT MEASURES (Percentages of GDP)

Source: ECLAC, on the basis of COVID-19 Observatory, official communications and information from international organizations. Information updated on 27 May 2020. Note: Includes the measures for which the amount was identified (73% of total credit measures reported by countries). Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

…the reality is that lending to the private sector is not recovering, despite monetary stimulus bringing down lending rates LATIN AMERICA AND THE CARIBBEAN (SELECTED COUNTRIES): REAL INTERNAL LENDING TO THE PRIVATE SECTOR, AVERAGES OF ANNUALIZED RATES, FIRST QUARTER 2017–FIRST QUARTER 2020 (Percentages)

Access to international financing on favourable terms • Broaden liquidity conditions • Issuance of special drawing rights (SDRs) to increase liquidity and allow countries to cope with a drop in their international reserves. • Transfer of SDRs from countries with surpluses to countries with deficits. • Special low-cost credit lines with longer repayment periods.

• A commitment from the international community, and especially the Group of 20 (G20), to capitalize multilateral credit institutions. • Debt relief and debt service standstill for highly indebted countries with large deficits and middle-income countries with high debt service burdens (the Caribbean and Central America), and concessional support to enable countries to address structural and climate vulnerabilities. Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections

Changing the development strategy • • • • •

Growth in production and employment is fundamental New technologies: efficiency and productivity Social and fiscal pacts to establish welfare states A big push for sustainability with equality Strengthening and expanding regional productive integration schemes Address the emergency and implement a strategy to overcome the structural weaknesses of economies and societies Alicia Bárcena Addressing the growing impact of COVID-19 with a view to reactivation with equality: new projections