Macroeconomic rare disasters and lost decades in Latin America: the COVID-19 experience in a historical context

Abstract COVID-19 led to the single largest year-over-year decline in Latin America’s GDP per capita in more than a century. Although the region has endured several macroeconomic shocks before, mostly related to financial dislocations, none has been so deep and synchronized, as measured by the negative co-movement of GDP rates in the major regional economies. Our analysis of the COVID-19 experience for the region and eight economies with available historical data reveals the extent of the damage. Through 2020, four economies suffered “rare disasters” (cumulative contractions by 10% or more): Argentina, Mexico, Peru, and Venezuela. In addition, Argentina, Brazil, Mexico, and Venezuela, together with the Latin America regional aggregate, underwent a “lost decade” (prolonged periods of stagnation), which highlights the confluence of the large COVID-19 shock and scarring effects with the underlying vulnerabilities that in many cases were built over several decades.