Latin American and Caribbean trade rebounded in September

10/10/2020

The Inter-American Development Bank (IDB), in its report on the impact of covid-19 on Latin American and Caribbean foreign trade, investment, and integration, found that the outlook is in fact less gloomy.

For the first days of September, a slight recovery in the activity of the main economic partners of the region was observed, the movement surpassed 70%, taking as a ceiling the figure reached in January 2020.

The region's external sales would have started to show signs of recovery since June, after registering the worst interannual falls during April and May. The growth would have been dissimilar for some countries that registered an attenuation of the global positive trend during the months of July and August.

Manufactures are the most affected by the crisis in trade between Latin America and the European Union; as of July, total exports between the two regions are said to have contracted by 12.6%, in part due to the drop in sales of machinery and manufactured products.

The least affected sectors were food, beverages, tobacco, and raw materials. Mexico had the greatest impact with a 23.7% reduction in its exports.

Due to the fact that for almost 90 days the Mexican economy was closed 70%, foreign trade had a strong fall, which caused the main exporting companies to have a strike in their production.

The automotive industry shows small signs of recovery in the main producing countries of the region: Argentina, Brazil, and Mexico, in terms of foreign sales and production. However, the figures continue to show negative variations below -10%.

Foreign direct investment was also affected, with Mexico, Colombia, Brazil, and Chile registering a 23% year-over-year decrease. For Mexico the figure was 11%; Chile, 19%; Brazil, 27% and Colombia with the highest percentage obtained 36%.

The impact of the pandemic could be compounded by another challenge arising from trade tensions between the United States and China. It may be positive in the sense that opportunities in the U.S. and Chinese markets could be seized in the event of a breakdown in trade relations. However, it is essential to keep in mind that the trade war could have negative implications, such as increased use of tariff protectionism and a lack of safeguards in international trade rules.

At the global level, the agricultural sector has benefited from the current situation. According to figures from the Organization for Economic Cooperation and Development (OECD), during the first months of the year, more than 35 countries and the European Union implemented measures to support the agri-food sector. This is a trend that has been growing since the crisis of 2008.

Integration processes will also continue to make progress. Among the most significant steps involving countries in the region is the Digital Economy Partnership Agreement, signed by New Zealand, Chile, and Singapore, which will promote sustainable digital trade.