World News

Latin American economy set for biggest crash in 75 years, says Goldman

By Jamie McGeever

BRASILIA (Reuters) – Latin America’s economy will fall into its deepest recession since World War Two this year, with growth shrinking 3.8% on the back of the coronavirus pandemic, economists at Goldman Sachs said on Friday.

Strangled by tight restrictions on movement, travel and business across the region, Latin America’s economy is expected to “hit a wall and face a sudden stop” in the second quarter, the bank’s economists said in a research note.

The contraction will be more severe than the 2.1% fall in regional gross domestic product in 2009, or the 2.4% decline in GDP during the South American debt crisis in 1983, the economists wrote.

“Latin America’s macroeconomic and financial environment continues to deteriorate, and at a pace with no historical precedent,” they wrote.

“The forecasted real GDP contraction … has no precedent in the post-war period despite several episodes of severe regional crisis and financial sudden stops,” they said.

Graphic: LatAm 2020 GDP – https://fingfx.thomsonreuters.com/gfx/mkt/13/4046/4002/latam2020.png

Goldman’s economists now expect Brazil’s economy to contract 3.4%, with Mexico’s GDP falling 4.3% and Argentina’s by 5.4%.

To counter this, central banks around the region are expected to cut interest rates further, in many cases to new all-time lows, Goldman said.

It now expects benchmark interest rates to be cut to 3% in Brazil, 0.50% in Chile, 3% in Colombia, 0.75% in Peru, and by a further 150 basis points to 5% in Mexico.

(Reporting by Jamie McGeever; Editing by Chizu Nomiyama and Tom Brown)

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