How Covid Impacted Companies in Latin America

By 04 May, 2021

Economic growth overall was already looking rather bad in Latin America before the Covid crisis. As such, it goes without saying that the pandemic didn’t help this part of the world at all, especially its companies – not to mention small businesses.

As mentioned by analysts, Covid brought to Latin America a lengthened period of economic uncertainty. The only period this region was reportedly performing much better was from 2003 to 2013. From 1980 until the present day, those ten years were the only good years for Latin America.

According to bankruptcy attorneys, the effects of the pandemic on the region’s economy can be seen in its GDP growth compared to previous years and in the constantly increasing unemployment rate.

Dire Forecasts

GDP growth percentages for 2020 show how the US, for example, has dropped by only 4.3 in terms of GDP. China, on the other hand, dropped roughly by 2 while the Eurozone seemed to be in more serious trouble, having experienced a drop of 8.3.

The latter applies to Latin America as well. According to last year’s reports, this region has dropped 8.1 in GDP. It’s quite close to the Eurozone, but what matters is how fast the regions will recover from the first year of the pandemic.

  • The USA is expected to experience as little as 3.1 GDP growth in 2021 and around 2.9 in 2022.
  • The Eurozone, on the other hand, seems to recover better with a growth of 5.2 predicted for 2021 and 3.1 for 2022.
  • Naturally, China – which has started recovering a long time ago – is expected to have a GDP growth of 8.2 in 2021 and 5.8 in 2022.
  • Last but not least, Latin America will reportedly perform well this year, with a growth of 3.6, but the following years will mark a slow return to its usual yearly growth – the 2022 prediction shows a 2.7 GDP growth. 

The Main Factors that Affected Companies

Obviously, companies can’t stand on their own in a seemingly crumbling economy, no matter how hard they try to stay afloat. Among the things that made a lot of them declare bankruptcy, the most important are:

  • Inflation – in Argentina, for example, inflation went as high as 54% during the pandemic; this happened in a country where inflation was already at 48% prior to Covid. If we pair this with the lack of GDP growth of the country in the past 7 years, it can be seen why companies have a hard time surviving there.
  • Decline in Domestic Demand – reportedly, most of Latin America but mainly Colombia, is facing a sharp decline when it comes to domestic demand. However, that’s not all: exports are scarce, and the oil price has gone down as well. The main result is an increasing unemployment rate that affects companies as well.
  • Weak Governmental Plans – if we take a look at Mexico, for example, we notice a poorly thought through pandemic plan, so to speak. Instead of sheltering employment within companies, the country relied on in-household handouts. 

The Bottom Line

Overall, companies in Latin America were not aided by their countries and did not benefit from their countries’ previous economic situations at all. It is well known that the region has been experiencing economic decay for more than just a couple of years now.

Therefore, startups probably don’t even dare operating there at the moment, whereas medium to large companies are probably struggling to survive. 

Due to the precarious economic situation, the majority of the working class has relocated abroad, from where they send money back to Latin America. In short, and as a result, companies in this region lack an essential part of their workforce as well.

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