By John Price Posted September 13, 2021 In Eco-political analysis
In the descendant economic chaos of 2020, all but a handful of the world’s economies declined thanks to COVID and, more specifically, the lockdowns that the pandemic provoked. By contrast, economic recovery varies substantially by region and by country. Latin America stood out for taking the most devasting blows from COVID. Its recovery will be even more remarkable and distinct from the rest of the world. Below are documented six reasons that together will help explain why Latin America will experience a rebound unique from other parts of the world.
#1 Infection is the Best Protection
A groundbreaking Israeli study, published August 24th, 2021, showed that people who were previously infected with COVID-19 were six times more likely to NOT be infected by the Delta variant versus those who were never infected but did receive two Pfizer vaccinations. This is unwelcome news to nations, like Israel, who worked effectively to minimize infection and rapidly vaccinated their population. Conversely, the study, which echoes humanity’s checkered past at fighting viruses (not diseases) with vaccines, provides some level of silver lining optimism to most of Latin America, which suffered global leading levels of COVID-19 infection.
In most of the world’s nations, including all but a few countries in Latin America, infection levels have been woefully under-reported. The more accurate data point is death by COVID, albeit with its own set of caveats. When we compare the COVID mortality rate trend over the last three months across a series of countries in the region, we see a clear pattern. Those with high accumulated COVID mortality rates on June 1st, 2021 realized strong declines in deaths (and presumably infections) over the next 90 days (through August 29th), regardless of the level of vaccinations, versus those countries that started the summer with low accumulated morbidity rates, even if their vaccination programs were quite advanced.
It is universally believed, and proven multiple times in separate studies, that vaccinations help reduce the impact of COVID infection, even if they do not prevent infection. But what the Israeli study shows, and three months of trend data bear out, is that highly infected countries like Peru, Chile, Brazil, Argentina, Colombia, Ecuador and Peru should continue to experience a steady decline of infection levels in spite of the arrival and spread of new variants. Time will tell if such a prediction is valid but if it is, then those highly infected societies will move on from COVID more quickly than the less infected countries. Latin America may well put COVID behind it before Asia, Canada, the Caribbean, the affluent Middle East and parts of northern Europe where infection levels were better controlled.
#2 Start of a Commodity Boom Cycle
The global monetary policy response to COVID, led by central banks in the US, China, Europe, Japan, Canada, Australia, and South Korea flooded the global economy with close to $12 trillion USD of additional cash, more than 10% of pre-COVID money supply. Couple that with aggressive fiscal spending on new infrastructure by the Americans and Chinese and select other countries and you have an unprecedented demand and supply boost to the world’s economy. Cash is still being hoarded by many corporations, wealthy individuals and even some governments so the supply side growth explosion we feel now should continue for at least another three years, lifting prices of just about every commodity the world produces.
At the same time, the logistical obstacles created by lockdowns, travel restrictions and nativist politics have stifled investment in new commodity supply. It could take years for supply to catch up with demand.
The world’s leading central banks today offer negative real-interest rates (interest rate minus inflation). Even if tapering begins and rates are lifted, inflation will remain well ahead of interest rates for the foreseeable future, further underpinning commodity prices.
The last time the world faced high commodity prices and low interest rates (2003-2013), Latin America grew at record levels in what was considered the greatest decade of growth in the past half-century. If reactionary politics don’t get in the way, Latin America may be on the precipice of a new super-cycle that creates impressive wealth for the region.
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