IMF in guarded optimism of economic recovery

The International Monetary Fund (IMF) has warned that the resurgence of the coronavirus pandemic towards the end of last year in some Caribbean and Latin American economies could frustrate an already uneven recovery.

The advisory came as the Washington-based financial institution revised its hemispheric growth forecast for this year to 4.1 per cent, up from the 3.6 per cent it predicted in October last year, despite the recent spike in COVID-19 infections.

But growth for this year was downgraded for the Caribbean, from 4 per cent to 2.4 per cent, because the resumption of the vital travel and tourism activity has been much slower than anticipated, the IMF said. It revised growth upward for Brazil, Mexico, Chile, Colombia, and Peru.

The IMF said it was predicting recovery of about 2.4 per cent growth this year for the Caribbean’s tourism-dependent economies – which includes Barbados – to be followed by about 4.4 per cent in 2022.

The IMF said its outlook was based on the stronger than expected performance in 2020, expected wider vaccination efforts, a better growth outlook for the US and higher prices of some commodities.

“Growth is expected to accelerate later in the year,” the IMF said in the statement published on Monday.

Authors Alejandro Werner, Anna Ivanova and Takuji Komatsuzaki said: “Latin America and Caribbean economies managed to bounce back from COVID-19’s initial economic devastation earlier in 2020. But the pandemic’s resurgence towards the end of the year threatens to thwart an uneven recovery and add to the steep social and human costs.”

They said already uneven recovery “has been threatened by the pandemic’s recent resurgence and the reintroduction of stricter containment measures in some countries, as well as spillovers from the slowdown in the global economy”.

Commodity exporters – Trinidad and Tobago, Suriname and Guyana – were expected to experience an average of -0.2 per cent growth in 2020, with a 4 per cent growth this year and 11.4 per cent next year.

But the IMF pointed out that risks remain for all markets in the region, pointing out that the pandemic’s social and human costs have been immense, and cast a large shadow its forecast.

The IMF research trio said: “over 16 million people are estimated to have fallen into poverty. Employment remains below pre-crisis levels and inequality likely increased in most countries. More than 18 million people have been infected, and half a million have died.

“Failure to contain new infections, imposition of new lockdowns, and the consequent change in people’s behaviour would all weigh on growth. A weaker rebound in labour markets would cause more permanent social damage. A sudden change in international investors’ sentiment would put pressure on countries with fiscal and external vulnerabilities. On the upside, success in vaccination and containing the pandemic, to which most countries are strongly committed, as well as additional fiscal support would create the conditions for a faster recovery.

“Given all the uncertainties, countries’ first priority should be to ensure adequate resources for health care systems, including vaccination and testing. And second, continue supporting vulnerable sectors most affected by the pandemic and cementing the uncertain recovery. Removing too much fiscal support too early would jeopardize these goals. Countries with room in their budget for more spending should continue providing support to their economies while making it more targeted, an effort that would certainly accelerate the recovery. Countries with limited spending capacity should prioritize health and household support.”

The IMF suggested that fiscal policy should continue to be supported by expansionary monetary policy in countries where inflation expectations are well-anchored, adding that financial sector policies should continue facilitating liquidity support to the corporate sector, aiming to make it more targeted without compromising financial stability.

Pointing out that the pandemic hit the Caribbean and Latin America harder because of its many inherent structural fragilities, the IMF added that the region “has paid a high toll in terms of infections and deaths relative to its population”.
(marlonmadden@barbadostoday.bb)