Covid-19 Pandemic Ravages World's Largest Developing Economies

By Kejal Vyas in Bogotá and Vibhuti Agarwal in New Delhi

From India to Mexico and Brazil, the world's biggest poor countries are witnessing some of the steepest economic contractions on record, throwing tens of millions out of work and turning back the clock on gains against poverty.

Poor nations haven't felt this kind of pain since the Great Depression. India's economy shrank by nearly a quarter, 23.9%, during the April to June period compared with a year earlier, its worst performance since quarterly figures began in 1996. Peru's economy contracted by 32% during that same period from a year earlier, Mexico's by 18.9%, Brazil's by 11% and Turkey's by 9.5%.

While the coronavirus pandemic has caused similar economic pain in richer nations, the fallout for developing nations is different in two key ways: First, the pandemic continues to tear through many poorer nations. India has the world's highest toll of daily new cases, and the U.S. is the only rich nation in the top 10 of daily Covid-19 deaths. The longer the pandemic drags on, the longer the economic pain.

Secondly, poorer nations have far fewer resources to spend protecting their workers and companies from the economic fallout. While rich nations can simply print more money or take on debt at a low cost, such a move by poorer nations might create more economic instability by sparking a selloff of the local currency.

"On average, the economic contraction of developed countries and emerging markets will not be too different this year. But the big difference is related to employment, as developing countries are less able to support workers," said Eric Parrado, chief economist of the Inter-American Development Bank.

The pandemic has already destroyed close to 26.5 million jobs in Latin America, more than Florida's entire population, he said.

Brazil's right-wing government of President Jair Bolsonaro embarked on one of the largest aid programs to offset the pandemic, handing out $100 a month to individuals and double that to families. But that compares with $600 a week -- some $2,400 a month -- given out by the U.S. government to unemployed workers in addition to unemployment benefits.

Unlike in rich countries, lockdowns in many poorer nations were less effective at stopping the virus in its tracks, partly because many people don't have savings and can't afford to stop working.

While European economies are starting to recover after most of their restrictions were lifted earlier this summer, cases and deaths have continued to climb in India and much of South America. Peru, Colombia and Argentina have all extended travel and other restrictions.

In India, the virus took longer to take root than in the U.S. or Europe. The country's lockdown, which started in late March and didn't begin easing until early May, was the broadest in the world -- covering all 1.3 billion of India's residents -- and one of the strictest.

The lockdown threw millions of migrant laborers out of work, and most returned from the cities where they worked to their homes in rural areas. That dealt a double-blow: The income they earned working dried up for their families, and they helped spread the virus from the cities to the countryside.

Now the virus is spreading faster in India than any other country. Although the economy has edged back since the lockdown eased, workers aren't likely to return to jobs in the city while the pandemic persists and will continue to cut back on spending.

"At the heart of the economic crisis is a health one, and it will be difficult for growth to gain a foothold if the economy keeps slipping on an unyielding pandemic curve," said Nomura economist Aurodeep Nandi.

Jagdish Singh, the 47-year-old owner of a general store in the state of Uttarakhand, said his business has been devastated.

"I have no money to pay my local employees. I'm planning to shut down. I don't think it will survive for more than two months," he said.

While India has lifted many restrictions, that isn't the case in much of South America. In Argentina's leafy capital of Buenos Aires, extended lockdowns have closed the 160 independent theaters along Corrientes Avenue, the city's version of Broadway. The Argentine economy contracted 19.5% during the second quarter from a year earlier.

Some theater owners, like Sebastian Blutrach, have dipped into savings to help pay reduced wages and avoid layoffs. But Mr. Blutrach, who has 32 employees, said he can't hold out much longer.

In the Colombian capital of Bogotá, which accounts for a third of national gross domestic product, the city only this week began to loosen regulations on restaurants, transport companies and other services.

A third of Colombia's estimated 90,000 restaurants before the pandemic have closed down. Jorge Rausch and his brother shut five of their six restaurants and laid off 170 of their 200 employees to try to focus on the remaining restaurant, the elegant Criterión.

For larger multinationals, the economic fallout of the pandemic means weaker sales in emerging economies, a turnaround from the past few years where poorer nations were helping offset sluggish sales in advanced economies.

Dove soap maker Unilever PLC reported a 1.9% drop in underlying sales in emerging markets for the second quarter but a rise of 2.1% in developed markets. Those figures mark a sharp reversal of 2019's trend when the company reported a 7.4% jump in second-quarter emerging market sales and a 1.6% drop in developed markets.

Even in regions of the developing world where the virus has largely been contained, economies have seen record-breaking declines. The Philippine economy contracted 16.5% in the second quarter, the sharpest quarterly decline in more than 35 years. On-and-off lockdown restrictions imposed on major cities since March throttled growth.

Thailand's economy contracted by 12% in the second quarter, mostly thanks to a collapse of the tourism industry, which accounts for 20% of the nation's GDP. Bangkok's Don Mueang international airport welcomed just 230 international arrivals this August compared with 602,000 passengers last August.

Poorer nations have fewer resources to throw at the problem. In Brazil, economists wonder how long the government will be able to keep up its aid program. It has spent $47 billion handing out monthly stipends, reaching an estimated 66 million people, or about 30% of Brazil's population.

Lucilene Barbosa Martins, 47, who cleans houses in São Paulo, saw her income drop at the start of the pandemic when she lost four of her five clients. Despite the cash payment from the government, she has fallen behind on her utility bills.

"I had to stop buying clothes and shoes for me and my son to try to pay the bills. And I still fell way behind," she said. "If it weren't for the help from the government, I would have been in much worse shape."

The jump in spending on the government's various stimulus programs pushed Brazil's total debt level higher to 86.5% of GDP in July from 75.8% at the end of 2019.

"Overall as an emergency action, it was a good response and people are happy about it," said Claudio Ferraz, a Brazilian economist and professor at the Vancouver School of Economics. But, he added, "it's not something you can sustain."

Mexico's President Andrés Manuel López Obrador ruled out taking on any more debt or sharply increasing spending during the pandemic. His government has boosted some cash programs for the poor, but denied broader help to companies, arguing that past bailout programs only helped the rich.

Restaurateur Patricio Peñalosa, 44, said the lack of government help doesn't only hurt the owners of businesses, but their employees, too.

Mr. Peñalosa decided to permanently close his two high-end restaurants in one of Mexico City's fanciest office towers, once-bustling centers of commerce that he now describes as a ghost town.

Mr. Peñalosa is also leaving Mexico for the U.S., where he plans to settle down with his daughter in Colorado and try to get a fresh start in the food business.

"Why am I leaving Mexico?" he said. "Because the government has no clear strategy to reactivate the economy. My business is bankrupt and I have no money to reopen."

Santiago Pérez and José de Córdoba in Mexico City, Jon Emont in Singapore and Saabira Chaudhuri in London contributed to this article.

Write to Kejal Vyas at [e-mail] and Vibhuti Agarwal at [e-mail]