By John Gallagher
Two economists speaking at an ASUTIL-hosted webinar last week predict that Latin America is unlikely to see any recovery from the current crisis before 2021, and that it could take the region’s two major powers longer than that to even reach pre-COVID levels.
Economists Tatiana Pinheiro from BNP – Paribas from Brazil and Buenos Aires-based Carlos Melconian, speaking at the second ASUTIL-hosted webinar in a week, warned industry listeners that any recovery in 2021 would be unlikely to offset the major contraction which has occurred in Q2 of this year and is almost certain to continue in Q3 and Q4.
Tatiana Pinheiro estimated that it would take Brazil up to three years to recover to pre-COVID19 levels. The estimated GDP contraction of 7.5% in 2020 would be accompanied by 2.2% growth in 2021. She commented that Brazil had not performed well in 2019 in spite of low inflation and low interest rates; and that the lack of a coordinated response from the Federal Government to attack the virus will make it difficult to propel the economy into positive growth quickly.
According to Pinheiro, the government does not have the fiscal tools to reactivate demand, highlighting that Chile, Peru and Colombia were more likely to restart growth, once they are able to control the virus.
As for travel, Brazil is restarting domestic flights although schedules are still lower than pre-virus.
Pinheiro doubts that international traffic will return until later in the year and schedules may depend on the availability of a vaccine.
The volatility of the Brazilian Real was also a major worry, said Pinheiro. Since the start of the year, the Real has moved in a wide band from just over 5.00 to the USD to close to 6.00 (with 5.25 considered closer to the true value).
With an uncertain political scenario, volatility would likely continue, clearly disappointing news for travel retail operators and suppliers.
Melconian confirmed many of the points made by Pinheiro and said that the Argentine situation was much worse than the Brazilian scenario. Recovery, when it comes, would be slow.
The well-known economist — former President of the Banco de la Nacion Argentina during the government of Mauricio Macri and currently CEO of M&S Consultores—said that Argentina’s extreme quarantine [against COVID-19] has killed the economy.
The economy was in a bad state pre-COVID19 and the recession, once the lock-down is lifted, could be one of the worst in living memory, he predicts.
He advised that debt restructuring and a deal with the IMF would be the key to an early recovery but that the fiscal gap was growing and the Central Bank printing machine was the only answer the government had at present.
Monetary expansion was keeping the economy afloat but the government had to take urgent measures, once agreement had been made with foreign creditors, to reduce the fiscal gap.
He also hinted at a possible devaluation as a possible answer but strongly argued against a “politically motivated” default.
The big danger to a recovery, according to Melconian, was a resurgence of inflation – the ability of Argentina’s current president, Alberto Fernandez, to take control of all aspects of government would also be crucial to starting on the road to recovery.
John Gallagher
