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

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.

FILE PHOTO: The ticker symbol and logo for Goldman Sachs is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., December 18, 2018. REUTERS/Brendan McDermid/File Photo

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 -

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