Latin America shows resilience in the face of Covid-19

Latin America was assessed to have the healthiest mid-market of all four profiled regions at the half-year stage. And the vitality of these mid-sized companies has improved still further in the second half of 2020 according to Grant Thornton’s forward-looking Global business pulse, to the point where it is now marginally above the levels seen just before the outbreak of the pandemic.


This incredible feat is a powerful demonstration of the resilience of businesses in this region, highlighting their ability to adapt and survive while the pandemic continues to advance in many countries. It also speaks to a fundamental characteristic of these businesses: that many of them are family-owned, with all the accompanying financial and management benefits.

Nicolas Cichevski.pngAdditionally, it reflects the steady pace of economic recovery in most countries in the region and a brighter outlook for the future. Nicolas Cichevski Sola, business consulting manager at Grant Thornton Uruguay, says: “Business leaders are hopeful that the region is entering a more positive economic cycle supported by stronger commodity prices and foreign direct investments.” This will be helped by the current low-interest rates that should support government spending and make more commercial projects viable in the region.

All of this is clearly reflected in the levels of economic optimism in Latin America, which have risen sharply since H1 to the point where 59% of firms are optimistic or very optimistic about the outlook for the economy over the next 12 months. These most recent results provide a timely snapshot of business health amid an environment dominated by COVID-19 and are based on interviews with around 5,000 mid-market leaders between October-December 2020.[i]

But the region still has big challenges. COVID-19 infection rates have been rising – with around one-third of total global deaths occurring in the LatAm region [ii] – and many governments have lacked the will or the means to properly support their populations and economies. There has been the additional practical challenge in countries like Brazil, Argentina and Mexico of how to support a large ‘informal’ element of the economy which is untaxed and largely unregulated.

The blow to all business in the region has been heavy, with the UN Economic Commission on Latin America and the Caribbean estimating that 2.7 million (or 20%) of the region’s companies will close for good.[iii] The bulk of the business failures are, however, expected to be among the smaller firms, raising the prospect of 8.5 million job losses.

Roy Buddle.pngRoy Buddle, regional head of Americas at Grant Thornton International Ltd, stresses the severity of the situation, “Until people can safely get back to work there is an increasingly high risk of social unrest, as healthcare, poverty, hunger, and a widening equality gap, bring the potential for political instability. It will be key to monitor the social backdrop.”

He goes on to question the more exuberant economic assumptions among some mid-market leaders: “One of my concerns is where are we in the lifecycle of the pandemic. I think we’re probably only halfway, and you can see the economic damage that has already been done. The next question is: how quickly can the vaccine get to the people in these countries to allow the economies to get back up to speed? That is critical.”

Expand the headings below for more insight
The region shows strength in growth expectations and reduced restrictions

A strength of the Global business pulse is that it tracks two dimensions of health: growth expectations (measured by the ‘outlook’) and the barriers to growth (tracked by ‘restrictions’). In H2 of 2020, both of elements recorded improvements, underlining a more holistic improvement.

Of the two, the outlook increased the most, jumping 13pts to 54.2 in the second half with improvements apparent across all countries. The restrictions improved 5pts to -47 and even surpassed pre-pandemic levels recorded in H2 2019 by 3pts. While both Brazil and Mexico saw the restrictions score improve, Argentina’s score fell vs. H1, which speaks to the country’s continued economic challenges.

While mid-sized companies may not have the same immediate vulnerability as their smaller counterparts highlighted above, Nicolas notes that many are heavily dependent on domestic private spending, which may take some time to recover. More positively, and in the immediate term, he notes that companies that may not have built up the same scale and level of productivity as their larger peers, may enjoy a little more protection from the pressures of international competition.

Belief in future growth fueling investment intentions

All three elements of the outlook improved strongly compared with the first half, but it’s economic optimism that sets the pace. Currently, some 61% of businesses in both Brazil and Mexico feel optimistic about the economy over the next 12 months. The improvement is much less pronounced in Argentina with 47% of mid-market firms optimistic for the economic outlook, although this is higher than the 2019 average for the country.

There has been a similar improvement in conditions, which captures expectations for business growth, and investment intentions. Historically the Global business pulse has shown a strong correlation between these two elements globally, and it is encouraging to see firms in Latin America following their own convictions and investing in the face of continued COVID-19 uncertainty. The investment categories that companies are prioritising in the region are technology (66% looking to increase investments), R&D (52%) and staff skills (52%).

In terms of growth expectations, 60% of mid-market companies in Latin America are expecting to increase revenue over the next 12 months, the second-highest growth outlook of any region tracked by the Global business pulse. A significant 58% of companies are expecting to growth profits over the next 12 months.

By contrast, export expectations have only edged up slightly since H1. Just 38% of firms now expect to increase exports in the next 12 months. Recent analysis by the World Trade Organization points to a ‘deeply depressed’ trade environment for South America in 2021 despite big increases in global volumes.[iv]

Robert Hannah.pngThere has been some debate about what impact the change in US administration will have on the region, but working on the assumption that America becomes more outward-looking and willing to trade, then Robert Hannah, global head of strategic growth markets at Grant Thornton International Ltd, believes it will be “hugely significant” and that the region stands to benefit massively as a resource hub for the US.

Roy makes the related point that if the US gets its recovery going and is willing to support Latin American countries with their vaccine needs, then that will also be a powerful stimulus for the region that we may see reflected in the next Global business pulse.

Barriers to growth are falling in Latin America

In contrast to many other regions, there was a marked improvement in the barriers to growth or ‘restrictions’ in Latin America – up 5pts to -47. But the three restrictions components (see below) tracked very differently during the period. Economic uncertainty was the element that showed the most improvement, reflecting some of the uplift seen in economic optimism. While, demand constraints, which track concerns about shortages of orders for goods and services, was flat for the period, reflecting the challenges ahead of the expected pick-up.

Encouragingly, supply constraints lifted materially during the period. The biggest single driver behind this was an improving picture when it comes to accessing finance. Only 41% of firms anticipate that a shortage of finance will be a constraint to their growth, down 12ppts from H1 2020 and now below levels seen in H2 2019. This is less of a concern across all three countries monitored by the Global business pulse, and the regional picture may be linked to the fact that several Latin American countries gained access to flexible credit lines from the IMF.[v] This is hugely important and will be the difference between success and failure for some in this prolonged pandemic.

Other regional highlights

Asia Pacific

Coronavirus control keeps APAC mid-market on upward trajectory

Read more Asia Pacific

European Union (EU)

Mid-market’s mood remains low across Europe, but new year offers new hope

Read more European Union (EU)

North America

North America stages the strongest comeback of all our profiled regions

Read more North America

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i. See our methodology section for more.
ii. www.bbc.co.uk - Covid-19 pandemic: Tracking the global coronavirus outbreak - 11 January 2021
iii. www.wsj.com - Covid-19 Derails Latin America’s Bid for Middle-Class Prosperity - 6 August 2020
iv. www.wto.org - Trade shows signs of rebound from COVID-19, recovery still uncertain - 6 October 2020
v. www.bloomberg.com - IMF Builds a $107 Billion Safety Net Under Key Latin Economies - 19 June 2020

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