An uphill struggle

The picture has brightened for Latin America as new COVID-19 cases have fallen from their peaks, which should allow governments to ease restrictions and provide a boost to economic recoveries. Even so, with the number of new cases still very high and austere fiscal policy likely from 2021, output across the region will remain well below its pre-crisis trend over the next few years at least. Chile should be a relative outperformer; Mexico and Argentina are likely to lag behind. Large output gaps should have a disinflationary effect and central banks are likely to keep monetary policy loose for longer than is currently discounted in financial markets.