For the last five years the economic performance of Latin America and the Caribbean has been disappointing, with growth rates being barely positive on average. Supporting the trends in social spending made possible by unusually high commodity prices was becoming increasingly difficult, which confronted many countries with painful adjustments. Over 2019, social unrest erupted across the region, reflecting a widening gap between popular expectations and economic and social realities. And then, in early 2020, international oil prices collapsed. This is also when the Covid-19 outbreak unfolded.
Countries in Latin America and the Caribbean have a rich history of severe adverse shocks, including precipitous falls in commodity prices, dramatic tightening of financial conditions, and major natural disasters. The current external environment of the region bears similarities with this history, which implies that previous experience will be very valuable. But the Covid 19 epidemic brings in a new dimension, as the measures needed to contain the outbreak of the epidemic also result in a major supply shock.
The channels through which the adverse external shocks will affect domestic economies vary from country to country. Demand from China and G7 countries will fall dramatically, but potentially to different extents, with diverse implications for commodity exporters in South America and for exporters of manufactured goods and services in Central America and the Caribbean. The decline of oil prices will have deleterious consequences for countries whose exports earnings and budget resources critically depend on oil, but it will bring relief to net oil importers. Air traffic has fallen to a trickle as flights have been massively cancelled to prevent the spread of the virus. The resulting collapse in tourism will severely impact countries in the Caribbean basin, but others less so.
As for the supply shock, Latin America and the Caribbean is only in the initial stages of epidemic. While all the G7 economies saw their first cases by the end of January 2020, the first deaths in the region happened almost two months later, in mid-March. The onset of a pandemic is characterized by deep uncertainty, especially as the virus is new and its contagiousness and lethality are not well known. Because of this uncertainty, most governments have sensibly chosen to err in the direction of saving lives, “at any cost” if needed. But several months after the outbreak of the epidemic, the growing availability of epidemiological and economic data allows assessing the impact of the measures adopted. For latecomers to the epidemic, this time lag provides an opportunity to adjust the policy response.
Countries across the region have been trying to manage the tradeoff between health costs and economic costs. Getting that balance “right” requires assessing both the health impact and the economic impact of the measures that may be adopted to contain the spread of the epidemic. These measures range from national- level quarantines and population lockdowns to social distancing initiatives targeted at vulnerable population groups, such as the elderly, or to specific locations.
An estimation of the impact of general and targeted measures on the number of Covid-19 cases was conducted for this report, building on daily data from 25 countries. The results show that general containment measures always result in fewer Covid-19 cases over time than targeted measures...