Question of the week: Which LatAm countries are in a better position to have a faster recovery?
We expect growth in Latin America to improve in 2021, but the second half of the year will be much better than the first. The Covid pandemic should ease substantially by then, assuming widespread vaccination. The disease should fade from Q2, allowing restrictions to be lifted permanently over the second half. This likely will drive a rebound in consumers’ spending, especially on goods, and the recovery of the job market will accelerate. Sectors badly hit by the pandemic, including hospitality and leisure, will gather speed. The accelerating U.S. and Chinese economies will also support external-driven LatAm economies and boost commodity prices.
That said, this benign economic scenario hinges massively on the vaccination programs. Countries with the most effective vaccination roll-outs will lead the recovery. Risks remain, though, given the emergence of more infectious Covid variants, which could delay the economic upturn, but our base case scenario is that the pandemic will come under control. Chile stands out, securing more vaccine doses than any other country in the region. The massive vaccination roll-out was the first in South America, with an early shipment of the Pfizer vaccine on December 24, to inoculate health workers and the elderly. A broader segment of the population will be vaccinated every week. The target is to vaccinate about 5M people by the end of Q1, and close to 30M by the end of Q2. Some 80% of the population will be vaccinated by then, reaching herd immunity. It won’t be an easy ride for Chile’s economic recovery, though. Political risk remains high, and the calendar is particularly busy this year. Political volatility and social unrest have the potential to contain the rebound.
Other countries have already started their vaccination programs, including Brazil, Mexico, Argentina and Peru. But the start has been patchy and full of problems, particularly in Mexico, or has started only very recently, as in the case of Peru. Even if successful vaccination programs emerge from the chaos, these economies won’t be out of the woods quickly, as some will face fundamental problems post-Covid, including high political risk, stubbornly high inflation—Argentina—or limited fiscal space, especially in Brazil. For now, though, the vaccination role-out is the name of the game.