The coronavirus epidemic in China raised concerns about the coronavirus threat to the economic growth of Latin America.
Not much is being said about this in Latin American media. Still, there is a growing concern within international financial institutions about the coronavirus epidemic. It could especially affect Latin American economies since China is the leading trading partner of several countries in the region.
Millions of Chinese have been quarantined. If China’s economy slows down, and the country’s consumption continues to minimize, exports from Latin American countries to China will fall.
China is the main trading partner of Brazil, Chile, Peru and Uruguay, and the second-largest trading partner for several other countries in the region.
Salmon and fruit exports to China have already been substantially affected in Chile, said the Chilean government. There are no workers in several Chinese ports to unload containers of Chilean products.
Latin American Economy is at a downside risk
International Monetary Fund (IMF) reported recently Chinese Coronavirus is among the significant downside risks for Latin American economies in 2020.
Before the outbreak of the epidemic, the economy of Latin America grew a lean 1.6 % this year.
Alejandro Werner, the IMF director for Latin America, says there is a lot of uncertainty. If this goes beyond the first half of the year, the economic recovery of the region would be less.
According to IMF internal studies, the most affected countries would be the exporters of commodities from South America.
Chile depends on exports to China for 34%of its world exports, Peru for 28%, and Brazil for 26%.
According to the IMF, China’s economic growth fell from six percent to five percent annually. Subsequently, the gross product of Chile and Peru would fall between 0.3 percent and 0.5 percent each.
Coronavirus Leaves Brazil and Mexico unharmed
For Brazil, the largest market in the region, the impact would be somewhat less. Unlike other countries in the area, Brazil depends less on exports.
Alicia Bárcena, executive director of the United Nations Economic Commission for Latin America and the Caribbean, said that the Coronavirus would affect many Latin American commodity exporters.
China is reducing its imports of perishable products such as soybean oil and fruits which are precisely the kind of products South American countries export to China.
Some speculate there may be a positive effect for Latin America if a slowdown in world trade forces the United States to reduce its interest rates to stimulate its growth.
Argentina and other indebted countries would benefit since their foreign debt payments are tied to US interest rates.
Even so, the overall impact of the Coronavirus in the region would be detrimental, says Fausto Spotorno, head of the Department of Economics at the UDADE University of Argentina.
The negative impact of a slowdown in world trade would be higher than the positive effect of a cut in US interest rates.
However, there are some reasons not to be excessively pessimistic. Coronavirus can begin to recede in April thanks to the heat when summer arrives in China, scientists say.
In that case, the projected Latin American economic growth could recover in the second half of the year.
Brazil is experiencing an economic recovery thanks to its new free-market reforms. Mexico, the second-largest economy in the region, could see an increase in foreign investments thanks to the recent free trade agreement between the United States, Mexico, and Canada.
China’s coronavirus epidemic is a much more significant threat to Latin America than to the United States. If it is a problem of short duration, it will be manageable, analysts say.
- Trading Instrument