Eduardo Levy Yeyati, Samuel Pienknagura
In 2020, GDP in Latin America and the Caribbean (LAC) is expected to contract by 8.1% compared to only 4.3% in the US. Relative to pre-pandemic expectations, downward revisions to growth in 2020 has been 3.5 percentage points higher in LAC than in the US. And this divergence is likely to endure: according to the IMF, “most countries [in LAC] will not go back to pre-pandemic GDP until 2023, and real income per capita until 2025,” whereas the US is expected to recover fully by 2022.
What is behind the asymmetric consequences of COVID-19?
Whereas differences in access to international capital and fiscal space may have played a part, most of the short-lived spike in Latin American sovereign spreads was offset by the flattening of international interest rates and rapidly reversed, with a neutral net effect in financing costs (Levy Yeyati and Valdés 2020). Instead, the nature of the labour market can help explain North-South differences i