Initial Conditions for Economic Recovery after COVID-19: A Logical and Quantitative Framework for Latin American and Caribbean Countries

The COVID-19 pandemic has triggered the largest global economic contraction since the Great Depression. Governments are faced with the daunting task of devising policy responses in an environment of high uncertainty. This note proposes a logical and quantitative framework based on widely accepted principles and existing information that can provide an additional reference point for policy analysis. The premise of the framework presented here is simple: identify key channels mediating the effects of COVID-19 on economic activity and use existing and harmonized data to deliver quantitative measures with a clear economic rationale, which are then assessed against key variables (such as growth, unemployment and employment-growth elasticities). Some key results found within this framework are: (i) initial conditions for recovery in Latin America and the Caribbean are behind those of the rest of the world, and (ii) the main contributors to the relatively low recovery potential are the supply and financial factors. The main policy implication is that one size does not fit all. Policy interventions need to be devised as much as possible with attention to the specific factors limiting the recovery potential.