Update Country Report Curaçao 01 Jul 2021

• The short-term economic outlook for Latin America in 2021 is improving as economies show signs of resilience to mobility restrictions; this has led us to make upward revisions to our 2021 GDP forecasts.
• Nonetheless, the pace of coronavirus vaccine rollouts remains one of the key variables that will determine the speed and sturdiness of economic recovery in the region. With a few exceptions, Latin American vaccine rollouts have been modest, lagging the OECD, although as we expected, the region is performing better in this regard than many other emerging markets. There is still a long way to go in many countries, however, and the region remains vulnerable to the resurgence of new infection waves, especially amid the rise of new (and potentially more deadly) variants of Covid-19. Even those countries that have had faster rollouts, such as Chile, are at risk; many of these have depended on Chinese vaccines, and there is a growing body of scientific studies that suggests that some vaccines, like China's Sinovac vaccine, could be less effective against some variants, including the Delta variant.
• Our forecasts are currently based on the assumption that most of Latin America will achieve herd immunity through vaccinations by mid-2022. Until then, the risk of new infection waves that could dampen the region's recovery will remain. Progress on vaccinations will be vital to engendering a robust, durable recovery.

Latin America's vaccine rollout has so far been uneven. Some countries, such as Chile and Uruguay, have made substantial progress with distributing vaccines, doing so almost as quickly as the US. Other countries, however, are struggling. A lack of domestic production capacity, limited access to vaccine deals and global supply bottlenecks have meant that many countries in Latin America-as in other emerging markets-have found it difficult to get their hands on vaccines. This means that most of the region is still suffering from renewed waves of infections. Most notably, Brazil recently surpassed the mark of 500,000 deaths from Covid-19.

Although many countries will continue to struggle in the short term, the region's outlook is much more positive than it was at end-2020, as most countries have now secured enough vaccine commitments to eventually cover most of their populations (exceptions include Bolivia, Guatemala, Haiti, Honduras, Nicaragua and Venezuela). In this context, we have revised our assumptions as to when we expect countries to achieve herd immunity. We now expect vaccination campaigns to be generally speedier than we projected at end-2020, with most countries reaching herd immunity by mid-2022 (compared with end-2022 previously), although we still believe that some countries, mainly in Central America, will take longer, only reaching herd immunity in 2023. Looking ahead, global supply capacity will be one of the main factors determining the speed of the region's rollout.

Reliance on Chinese vaccines

With limited access to vaccines produced by Western countries (such as the US and the UK), many Latin American nations have relied heavily on China, both for imports of active ingredients for domestic production (as in Brazil), and for direct shipments (mainly of the Sinovac vaccine). Chinese vaccine supplies have allowed some countries to push ahead with their vaccine rollouts, but there are growing concerns that these vaccines may not be as effective as others against new variants or in terms of reducing transmission. According to an announcement made in late June by Liu Peicheng, a Sinovac spokesperson, preliminary results from blood tests indicate that the Sinovac vaccine is likely to be less effective against the Delta variant. This could undermine progress even in countries that have made significant strides with their vaccine rollouts, such as Chile, where about 80% of the vaccines so far distributed have been Chinese (mainly from Sinovac). Despite Chile's progress (over half of the population has been fully vaccinated), Covid-19 deaths are still high, and concerns about a new wave of infections are rising as the Delta variant begins to be detected across Latin America, including in Chile and Brazil. In an attempt to ward off these risks and diversify its vaccine portfolio, Chile is looking to order new shipments of vaccines from Moderna (US) and the Gamaleya Institute (Russia). Other countries that have relied heavily on Chinese vaccines could face similar challenges, which we will monitor closely, as it is possible that they will need to roll out a third booster shot, which could extend vaccination timelines beyond our current projections.

Not all of the region has relied heavily on China, but countries that have not are generally rolling out vaccines more slowly. Some Central American countries, like Honduras and Guatemala, are relying mostly on the WHO-led COVAX Facility, and less on China. This largely reflects tensions in bilateral relations, as both Honduras and Guatemala have close ties to the US and are unwilling to make certain concessions to China (such as not recognising Taiwan diplomatically), especially as they move to strengthen relations with the new administration led by Joe Biden. Moreover, some smaller Caribbean islands have been able to push ahead without Chinese vaccines, especially those that are European territories, owing to support and donations from home governments. Multilateral aid and bilateral donations, especially from India, have also helped to support rollouts in the Caribbean.

For those countries that have relied on Chinese vaccines, that dependence is likely to fall gradually as supply capacity for Western vaccines frees up. The US and the EU are boosting their vaccine diplomacy now that their own rollouts are well under way; the G7 recently made a commitment to donate 870m doses to the rest of the world. The Biden administration has also committed to supporting vaccine supply in Latin America through COVAX, as well as through direct shipments. Nonetheless, these deliveries are likely to be gradual and thinly spread across the region; Colombia, for instance, will only receive 2.5m doses from the US in direct shipments. It is therefore unlikely that the pace of vaccinations will accelerate significantly this year, as issues around supply-chain bottlenecks and limited production will remain.

Resilience to restrictions

The drawn-out vaccination timeline means that much of the region will remain vulnerable to new infection waves and the rise of new variants that could necessitate fresh mobility restrictions. For now, we maintain our long-standing assumption that Latin American governments will not impose full lockdowns like those seen at the onset of the pandemic and will implemented targeted measures only.

Even where mobility restrictions remain in place, there are signs that they are having less of an impact on economic activity. Latin America has suffered from various waves of infections this year, but economic data so far have surprised on the upside, particularly in Colombia and Brazil. This is partially due to external factors, such as strengthening recoveries in the US and China, higher commodity prices (which are boosting exports) and record-high inflows of workers' remittances. However, increased resilience to restrictions has also played a role. Lockdowns have been less strict than in 2020, and economic actors seem to be adapting to restrictions. In this context, we have recently revised up our GDP forecasts for much of Latin America. We now expect most economies-including the region's largest countries-to return to their 2019 pre-pandemic GDP levels by 2022 (until recently we had not expected a full regional recovery until 2023).

However, in the absence of herd immunity, and without greater progress with vaccine rollouts, we do not believe that economic growth can remain robust or that economic recoveries will prove durable. This is particularly the case for those countries, especially in the Caribbean, that rely on services like tourism. For all of Latin America, however, we believe that there remains a risk of coronavirus-related setbacks in the second half of 2021 and the first half of 2022.