New Report Analyzes the Macroeconomic Trends of 2021 in Latin America, Showcasing a More “E-conomic” and Domesticated Region
Economy 2021, created by Mastercard Economics Institute, presents an outlook on life in 2021.
MIAMI, FL – January 12, 2021 - To help governments and businesses of all sizes find a path forward following the challenges of 2020, the Mastercard Economics Institute released Economy 2021, an outlook of what’s to come in economies around the world and in Latin America. The report can be found here.
The institute was launched to analyze global macroeconomic trends through consumer optics, providing detailed and actionable insights on economic issues for key customers, partners and policymakers. A team of data scientists and economists assessed main economic indicators, paired with an analysis of anonymized and aggregated sales activity across the global Mastercard network, to deliver global and regional insights into consumer spending, e-commerce and digital acceleration, travel, and economic policy and risks.
“This year put us all to the test. We’ve become more distanced, more digital and more domestically focused. We made a dramatic digital leap forward and saw incredible resilience from small business owners, consumers and policymakers looking to keep us on track,” says Bricklin Dwyer, Mastercard’s Chief Economist. “2021 will not bring a light-switch return to life before COVID. With a vaccine in sight, we expect a gradual yet uneven recovery that will highlight the benefits of embracing digital and low-touch experiences.”
The report spotlights a number of key trends to watch in Latin America, including:
Hits to Remittances and Tourism Will Continue
A double hit comprised of a slowdown for international tourism and a reduction in remittance flows will greatly impact growth, especially for many of the region’s small, externally positioned economies. As international tourists are re-routed to more local destinations, Mexico, Peru, Ecuador, Central America and the Caribbean are heavily exposed to the drop in international tourism because they have historically run the largest tourism surpluses in the region. In addition, global work restrictions will impact workers abroad and the remittances they send home. Specifically, there will be a decline in remittances from workers and families abroad –which amounted to 1.5% to 3% of total GDP in Peru, Colombia, Ecuador and Mexico. In the Caribbean, the impact is in the double digits.
More Players Debut in E-commerce Markets
During the crisis, e-commerce spending jumped significantly from its pre-crisis levels, from about 10% to 16% of overall spending at its peak. While e-commerce adoption in Latin America and the Caribbean is low compared to other regions, we expect that about 20-30% of the Covid-related surge in e-commerce globally will be a permanent bump in its share of overall retail spending. Notably, the adoption of financial services delivered via online channels as well as other digital services is growing in popularity among the lower-income demographic, and this trend is likely to continue well into 2021.
Inflation and Consumer Spending
Consumer confidence remains soft as uncertainty about the virus and the economy remains high. We expect growth to be driven by fiscal stimulus and by how the crisis evolves, including vaccine distribution. Inflation in the region has been contained, but there are pockets of risk, particularly in Brazil, as higher inflation remains a threat for consumption in 2021.
Given the aggressive interest-rate cuts in Brazil, surging food prices pose a challenge to policymakers who attempt to contain inflation expectations. After a large fiscal package pulled many Brazilians out of poverty and stimulated consumer spending, the expiration of the ‘coronavoucher’ and the broader sustainability of government handouts remain dangling questions. Beyond the surge in supermarket spending, Brazilian consumers focused their purchases on home furnishing and electronics stores, in addition to acquiring building materials early in the crisis. The northern part of the country has proven to be the regional outperformer, and it showcases the move away from more urban centers.
Online Business Continues to Accelerate
Based on what the Economics Institute is seeing in the U.S. and other parts of the world, business creation will likely be limited to those who sell goods online. This is due to uncertain demand, currency moves, tighter lending conditions and travel and entertainment challenges that impair new brick-and-mortar businesses. In the meantime, online business creation continues to gain momentum as other businesses become ‘formalized’–officially registered–in order to take advantage of government programs.
Fiscal Sustainability Challenges are Mounting
Fiscal savings and fiscal approaches differ among Latin American countries like Chile, Peru, Brazil and Mexico, thus creating varying degrees of risk and a plurality of potential outcomes. An economy’s ability to continue to recover in 2021 will rely heavily on whether or not governments can provide fiscal stimulus while staying on track to service their debt over the long term. Expiring stimulus, especially in Brazil, is a looming risk for 2021. While Mexican fiscal conservativism contrasts starkly with Brazil’s fiscal spending spree, it’s not clear which of the two is the ‘right’ approach because both nations are facing fiscal challenges.
To download the full Economy 2021 report, visit www.MastercardServices.com.
