As if Latin America didn’t have enough problems, there’s a new threat to the region’s economic growth this year: China’s coronavirus epidemic.
You don’t see much about this in the region’s media, but there is growing concern within international financial institutions that the coronavirus epidemic could hit Latin America’s economies especially hard because China is the No. 1 trading partner of several countries in the region.
If China’s economy slows down because tens of millions of Chinese have been quarantined, and its consumption continues to slow down, exports from Latin American countries will plummet. China’s trade with Latin America has soared to $306 billion in 2018 from $17 billion in 2002, according to the U.S. Congressional Research Service.
China is the top trading partner of Brazil, Chile, Peru and Uruguay. It is the second-largest trading partner of several other countries in the region.
In Chile, exports of salmon and fruits to China have been substantially hit because, among other things, there are no workers at major Chinese ports to unload the containers, the Chilean government said. Wine exports to China are falling, too, because fewer people there are dining out.
A little-noticed recent statement by the International Monetary Fund had already included China’s coronavirus epidemic among the “significant downward risks” for Latin American economies in 2020. Before the epidemic’s outbreak, Latin America’s economy was projected to grow by a meager 1.6% this year.
“There’s a lot of uncertainty,” the head of the IMF’s Latin America Department, Alejandro Werner, told me in a telephone interview. “If this problem extends beyond the first half of this year, the region’s economic recovery would slow down.”
According to IMF internal studies, the most affected countries in the region would be South America’s commodity exporters. Chile depends on exports to China for 34% of its total exports, Peru for 28% and Brazil for 26%.
If China’s economic growth fell from 6% to 5% this year because of the coronavirus outbreak, the gross domestic product of Chile and Peru would fall by between 0.3% and 0.5% each, IMF studies show.
For Brazil, the region’s largest economy, the impact would be somewhat smaller, because Brazil is less dependent on exports than other countries in the region.
Alicia Barcena, executive director of the United Nations Economic Commission for Latin America and the Caribbean, told me that many Latin American countries will be hurt “because China is reducing its imports of perishable goods such as soybean oil and fruits, which are precisely the kind of goods that South American countries export to China.”
Some are speculating that there may be a positive effect for Latin America if a slowdown in world trade caused by the coronavirus crisis drives the United States to reduce its interest rates to stimulate economic growth. Argentina and other debt-ridden countries would benefit, for instance, because their foreign debt payments are tied to U.S. interest rates.
Still, the overall impact of a prolonged coronavirus epidemic for the region would be negative, says Fausto Spotorno, head of the Buenos Aires-based Universidad Argentina de la Empresa’s economics department.
“The negative impact of a world trade slowdown for the region would be bigger than the positive effect of a cut in U.S. interest rates,” he says.
But there are some reasons not to be excessively pessimistic. The coronavirus may start fading in April as China’s summer season heats up, scientists say. In that case, Latin America’s overall economic growth projected for this year may not have to be revised downward, because China’s demand would recover substantially in the second half of this year.
In addition, Brazil is seeing an economic recovery thanks to its government’s pro-business reforms. And Mexico, the second-largest economy in the region, may see an increase in foreign investments because of the recently signed free-trade agreement between the United States, Mexico and Canada.
China’s coronavirus epidemic is a much bigger threat for Latin America than for the United States. If it’s a short-lived problem, it will be manageable. If we’re still talking about this issue in June, it’s going to be big trouble in an already troubled region.
ABOUT THE WRITER
Andres Oppenheimer is a Latin America correspondent for the Miami Herald, 3511 N.W. 91 Avenue, Doral, Fla. 33172; email: email@example.com.
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