Despite gleaning year-on-year growth in export trade levels, a recent report from the Economic Commission for Latin America and the Caribbean (ECLAC) is urging caution. Its report- Latin America and the Caribbean in the World Economy: the region in the decade of the emerging economies – projects that the value of goods exports will rise by 27% this calendar year. The report states prices will contribute the most to this rise (18 percentage points), whereas volumes will contribute 9 percentage points. This mirrors the rise in exports recorded in 2010, when an increment of 26.7% was recorded. Imports in the region are projected to rise by 22%, in comparison to a 29.5% rise in the previous year. Within this, fuel imports are set to rise by 46%.
“Slower growth in imports than in exports may result in a regional trade surplus of around USD 80 billion at year-end, in particular with the United States and, to a lesser extent, with the European Union,” states the report. It adds that Latin America and the Caribbean will widen its trade deficit with China and the rest of Asia, but with a differentiated sub-regional pattern, as South America will register a surplus and the rest of the region a deficit.
Put into perspective, these increases came after drops of -22.6% and -25% in exports and imports respectively as the dismal global economic situation of the time took its toll in 2009. Many forecasts of worldwide fiscal recovery since then have at best seemed optimistic and at worst naïve, so the caution urged by ECLAC is understandable. It points to continued instability in the US economy, and particularly in Europe with the crises in Greece, Ireland and Portugal, as an ever-present cause for concern. Add to this instability in North Africa and other factors pushing up fuel prices, and the global financial effects of the tsunami tragedy in Japan, and ECLAC seems justified in stating that “volatility and uncertainty are again reaching worrying levels.”
MACROECONOMIC PRUDENCE
The report notes how data for mid-2011 suggests that slower growth in industrialised nations is beginning to act as a drag on the main emerging economies of China, Brazil and India. It notes how this global situation is likely to result in “slack” economic growth across the world in 2012, particularly given the complex period of consolidation required to sort out problems in the US and Europe. Despite this, ECLAC argues that the decade of 2011–2020 could still be a boom period for emerging economies: “The engines of the global economy will depend increasingly on growth in the emerging economies and on South-South trade and investment. As emerging economies achieve high and stable growth rates and their population growth slows, their per capita income will rise and move towards convergence with the industrialised economies, particularly for the middle class in these countries.” However, the report notes that the great instability across the world’s economies means that the main recommendation for Latin American and Caribbean economies is macroeconomic prudence. Fiscal volatility is affecting economies with deep financial and stock markets in the region, ECLAC states, and the slowdown in Europe and the US will limit export growth and depress commodity prices. The report reasons that Latin American and Caribbean economies should strengthen macroeconomic management, pursue sustainable fiscal and external accounts, reinforce macro-prudential measures, and steer their policy decisions by the long-term behaviour of main economic variables. If these trends continue, exports to Europe and the United States should be expected to slow in 2012 and export growth will be compromised in economies whose exports depend heavily on those markets. As growth slows in the emerging economies and the industrialised economies show increasing weakness, the report states, international commodity prices are likely to fall, affecting the trade and current account balances of net commodity exporters.
RISES BY REGION
In terms of regions, the report notes the importance of trade with Asia over the past decade. In particular, Latin America has recorded a notable rise in trade with China. Moreover, it notes how South-South trade, led by China and the rest of emerging Asia, is the main engine of world trade growth. In 2005–2010, the region was the fastest-growing trading partner for China and the second fastest for Japan. During this period, China’s exports to and imports from Latin America and the Caribbean grew at almost twice the rate of its total trade for the time, accounting for almost 6% of the nation’s exports and imports in 2010. During this time, Japan’s exports to Latin America and the Caribbean outgrew those to any other destination market and its imports from the region were surpassed only by those from the Community of Independent States (CIS). The report recommends that nations in the region should continue to attempt to optimise these trade levels and “redouble their efforts to forge a new trans-Pacific relationship.”
Additionally, the report also notes that the region is becoming an increasingly important trading partner for the US. Over the past 20 years, the US’s trade with the region has increased at a rate only surpassed by China, and in 2010 it became the largest buyer of US goods exports, accounting for 23% of the total. In that same year, 19% of total US goods imports were sourced from the region, positioning it similarly to China in the US’s import ranking. Within this, Mexico accounts for more than two thirds of the region’s exports to and half of its imports from that market. However, the region’s trade with the EU is less notable, hovering at around a 3% share over the past three decades. Although the EU is still the region’s second largest trading partner, it could lose this position to China towards 2015. This being said, the report reflects that the two regions have sought to enliven their trade relationship in recent years. In 2010, the EU completed negotiations for an associate agreement with Central American countries, including Panama, and a trade agreement with Colombia and Peru. Further to this, last year also saw the resumption of negotiations on an association agreement between the EU and Southern Common Market (MERCOSUR). In addition to agreements already in place with Chile, Mexico and the Caribbean Forum of African, Caribbean and Pacific States (CARIFORUM), by 2012 or 2013 the European Union could have preferential agreements with 30 countries in the region. The report also notes how commodity prices have been booming since early 2009, until being interrupted midway through this year amid global financial instability. These higher commodity prices, it explains, are highly positive for most South American countries but negative for most countries in Central America and the Caribbean. The largest benefits accrue to South America, particularly Paraguay and Uruguay in the case of food and beverages, Chile, Peru and the Plurinational State of Bolivia in the case of metals and minerals; and the Bolivarian Republic of Venezuela, Colombia, Ecuador and, again, the Plurinational State of Bolivia in the case of energy products. In contrast, higher commodity prices hurt terms of trade for most Central American and Caribbean countries. The Caribbean countries are even more vulnerable than those of Central America, ECLAC details, because they run a trade deficit in food and beverages, metals and minerals, and energy products, whereas the trade deficit of the Central American countries is concentrated in this last category.