Latin America market report 2021: a long road to recovery
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We forecast that gross domestic product growth in Latin America will bounce back to 5% in 2021, after a 7% contraction in 2020 on account of the COVID-19 pandemic. We expect the recovery will be uneven and protracted, with Colombia, Chile and Peru in the lead (5.4%, 6.4% and 9.2% growth, respectively). The two largest countries in the region, Brazil and Mexico, will grow by a forecast 3% and 5%, respectively.
We expect total premium (life and non-life) growth to rebound to 4.4% in real terms in 2021, after contracting by 3.4% last year. The insurance markets in Latin America have proved more resilient to pandemic fallout than initially expected. The region has followed the global trend of rate hardening in commercial lines, although at a slower pace. Price increases have been driven by property and financial, and professional liability lines.
A resurgence in COVID-19 cases and deaths, and a new highly contagious variant since early 2021 has seen a re-imposition of lockdown measures. Comprehensive vaccine rollout will be the only way out of the health and social crisis, and a return to economic normalisation. However, progress on mass vaccinations in the region is slow. Most countries have struggled to secure enough doses and to overcome logistical challenges. The exception is Chile, where vaccine roll out is one of the fastest in the world.
Weak economic resilience following years of low growth and structural issues prior to the pandemic will weigh on region-wide recovery and undermine countries' ability to absorb future economic shocks. We expect GDP levels to return to pre-pandemic levels by the end of 2022, which would translate into three years' worth of lost growth.
Inflation is likely to pick up in the near term in the region, on the back of recovering economic activity, rising energy prices and base effects. In 2021, inflation in Brazil and Mexico's is expected to average 5.1% and 4.5% respectively, above the centre of their central banks' inflation targets.