Mexico, Latin America the Most Affected by the Pandemic

The changes that the COVID-19 pandemic has brought to our lives, the economy, society and politics have led us to rethink the future, its opportunities and risks. According to the United Nations Conference on Trade and Development (UNCTAD), by the end of 2019 the world was already suffering from the fragility of the global economic system. In fact, "it was much more fragile than we were willing to acknowledge," says Mukhisa Kituyi, Secretary General of UNCTAD in UNCTAD’s Trade & Development Report 2020. “Data for the first two quarters of this year show output contracted more sharply than in 2008-2009, in some cases registering the steepest drop on record. Estimates for the year point to a generalized global recession matching the Great Depression of the 1930s,” says Kituyi. 

However, with every change comes opportunity and the best way out of this crisis is to look and walk into the future. According to UNCTAD, we have to rethink ourselves as a society, a country, a region and a globalized world, because we have to recover better than from the crisis of ten years ago and we cannot lose another decade of growth and development, particularly in developing countries. 

One of the foundations for driving recovery is to strengthen people's incomes and employment. “In a textbook world, income distribution is a well-rehearsed fiction. Wages are negotiated in markets where everyone has equal bargaining power and the outcome is a wage reflecting each worker’s productivity,” explains UNCTAD’s Report. Therefore, to revive productivity and employment, countries need to start with a recovery based on faster wage growth for low-wage jobs. "Wage repression and ever weaker labor market rules are only going to make the pre-existing conditions of the world economy worse," says UNCTAD.

IMF and UNCTAD economists believed before the arrival of the pandemic that 2020 would be the year in which the economy would accelerate away from the slowdown it experienced in 2019. The pandemic, however, has clearly forced a re-appraisal. Regardless of how positive or negative the recovery may look like in the future, it is a fact that "world income is still unlikely to reach its pre-COVID-19 level by the year's end," says UNCTAD. 

Similarly, UNCTAD presented the Trade and Development 2020 report at an official conference on Sept. 22, highlighting that Latin America is the continent with the most acute economic contraction at over 7 percent of its GDP due to the crisis caused by COVID-19. Also, the UNCTAD report warned that at the global level, the possibility of a second recession of an 'unrecognizable magnitude' could hit the economy. 

The world economy suffered a fall in gross domestic product equivalent to 4.3 percent so far in 2020, according to UNCTAD estimates. This figure is 5.8 percent for developed countries and 2.1 percent in developing countries. However, Latin America, within this scenario, is the most affected region. UNCTAD estimates that its economy will contract by 7.13 percent and is expected to grow by only 3 percent in 2021. Recovery looks far away for Latin American countries. 

The estimates are not positive in the specific case of Mexico, either. "The Mexican economy would record an alarming fall of 10 percent in 2020 and a rise of 3 percent in 2021,” said UNCTAD Senior Economist Alex Zueritea. “Compared to the recession, the estimated growth of 3 percent would be quite subdued and would be insufficient for an economy that would have to grow by more than 10 percent to recover from the recession."

In view of the uncertainty and the effects of COVID-19, UNCTAD made four recommendations to accelerate recovery. The first is to combine a sustainable strategy that includes immediate action toward medium term goals like robust economic growth, industrialization and development, inclusiveness, employment, financial stability and climate change mitigation. Second, the environment matters in the recovery process, so growth strategies must be based on renewable energy and improved energy efficiency. Third, countries must opt for development and external financial balances where simultaneous attention is paid to environmental care, economic development and financial stability. And finally, countries must make efforts through public policies to make economic growth more even. These include, according to UNCTAD’s report, “minimum wage laws, promotion of regularization of labor contracts and social benefits, protection of labor rights including the formation of unions and the provision of care services and other measures that contribute to gender equality in the workplace.”