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As the global economy plunges, the IMF says Latin America will be particularly hard-hit

The International Monetary Fund slashed its world economic forecasts once again on Thursday and warned that public finances will deteriorate significantly as governments attempt to combat the fallout from the coronavirus crisis.

The deep recession in the U.S. will mean a steep drop in trade with Latin American countries.

The IMF now estimates a contraction of 4.9 percent in global gross domestic product in 2020, far lower than the 3 percent fall it predicted in April. It says it is possible that the numbers will be revised downward again.

The IMF says that Latin America will be one of the hardest-hit areas. “We predict the economic contraction in the region could be catastrophic and we see few countries escaping it,” the IMF’s World Economic Outlook report says. The report said its prediction for a 9.4 percent drop in regional economic activity could be much worse if stronger measures are not taken to enforce social distancing and other measures to slow the spread of Covid-19. “As of late June, we see too many countries allowing normal social and business activities to resume which is a recipe for disaster,” the report said.

According to the IMF, except for Africa, Latin America has the largest percentage of its population engaged in informal labor. “The informal workers are extremely vulnerable economically due the virus and there is an inadequate social welfare system to protect them,” the report said.

Another vulnerable population are Venezuelan refugees in Colombia, Ecuador, Peru and Chile. “Many of them have no means of support and are living in shelters or on the street,” the IMF says.

Among individual nations, the IMF says economic activity will drop 9.1 percent in Brazil, 10.5 percent in Mexico, 9.9 percent in Argentina, 9.2 percent in Ecuador, 7.8 percent in Colombia and 7.5 percent in Chile.

In North America, the IMF says the U.S. faces the industrialized world’s largest contraction, plunging 8 percent through 2020, down from the previous estimate of -5.4 percent. “The recession in the U.S. has a ripple effect on Latin America, given that country’s role as a trading partner to Latin America,” the IMF said.

The IMF said that Canada would fare better due to a stronger social “safety net.”

Under the IMF’s base case, global public debt will reach an all-time high in 2020 and 2021 at 101.5% of GDP and 103.2% of GDP, respectively. In addition, the average overall fiscal deficit is set to soar to 13.9% of GDP this year, 10 percentage points higher than in 2019. The IMF says the debt rates will be much higher for Latin America and the U.S.