RECESSION IN LATIN AMERICA: 3 KEY ELEMENTS FOR INTERNATIONAL TRADE COMPANIES
The economic projections of the World Bank and the Economic Commission for Latin America and the Caribbean (ECLAC) foresee an unprecedented recession throughout the region. However, companies that make the right decisions and forecasts will, of course, be able to handle it better. What are the elements to be considered to achieve this?
The prospect of an average regional fall of 5.3% in gross domestic product (GDP) by the end of this year is behind us. Now projections by both the World Bank and ECLAC speak of a recession in Latin America of over 7% of GDP. Although there will be differences between countries and especially between companies that implement rapid and innovative measures in this scenario.
At Credit Report we want to share with you three key elements that all international trade companies should now consider in their evaluation scenarios of this recession in Latin America. Especially if you are looking to make an accurate analysis and keep your business afloat during the following months.
A second wave of the new coronavirus
The COVID-19 pandemic is an unprecedented blow to the region’s health systems and economies, but one element that will determine when economic recovery begins is the performance of patient care and the number of cases that occur during the quarter that has just begun.
The economic projection of the Organization for Economic Cooperation and Development (OECD), for example, is divided into two different scenarios. A first scenario is if Latin American countries manage to slow down the rate of infection and reduce the burden on health care systems or if, on the contrary, a second massive wave of new coronavirus infections occurs towards the end of the year and therefore strong restrictions on mobility and economic activity continue.
The optimistic scenario that prevents a second outbreak of the new coronavirus in the region speaks of an economic fall of 6% of GDP on average for this 2020 and a recovery of 5.2% for the coming 2021.
However, if health measures fail to contain the rapid spread of COVID-19, then a recession in Latin America of 7.6% and a weak recovery of only 2.7% is projected for next year.
Action by the region’s governments
Most governments and monetary authorities in Latin America reacted quickly and boldly to the economic challenges of the COVID-19. Now it all depends on how much they can focus on injecting resources to continue supporting the most vulnerable enterprises and especially the segment of informal workers.
The actions of Latin American governments will also be very important in retaining the capital flows present in their countries. This can make a difference in the financial and administrative capacity between one country and another, especially now when financial markets increasingly seem interested in taking refuge in traditional safe assets.
Keeping an eye on the fiscal measures implemented by the big players in Mexico and Brazil, as well as in Chile, Peru or Colombia, can be very important for both importing and exporting companies. This will allow them to analyze their market opportunities in the short term.
Decrease in expenditure
Cutting costs is not only a practical and recurrent measure in a scenario like this of the COVID-19 pandemic and the recession in Latin America. It is an action that can make the difference between countries and even more so between international trade companies that succeed and those that do not in the coming months.
Those government administrations that focus on increasing the efficiency of their public spending and have a better plan of measures to launch new debt in the long term will achieve better results.
Meanwhile, international trade companies not only have to reassess their expenditures in terms of cash flow, but also understand what measures are implemented for the effectiveness of spending, both in the country where they operate as a central base and in those countries that are part of their most regular client portfolio.
The local and regional economic information handled by each company in international trade today can make a difference. At Credit Report we not only have a commercial information network that covers more than 190 countries, but we focus on analyzing and translating that data for each of our clients’ businesses.
If your company is looking for valuable, high quality, and time-sensitive information to address this recession in Latin America, then it is time to write to us.