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—but recovery will be asymmetrical, in context of uncertainty
Latin America and the Caribbean’s international trade will experience a significant rebound in 2021 after the sharp drop recorded last year, but this recovery will be asymmetrical and very heterogenous between the region’s countries, in a context of great uncertainty due to the crisis stemming from the COVID-19 pandemic, the Economic Commission for Latin America and the Caribbean (ECLAC) indicated last week in a new annual report.
The United Nations regional commission released its flagship report International Trade Outlook for Latin America and the Caribbean 2021 during a press conference led by the organization’s Executive Secretary, Alicia Bárcena.
According to the document, ECLAC projects a 25% increase in the value of regional goods exports for 2021 – after a 10% drop in 2020 – driven by a 17% rise in export prices and an 8% expansion in the volume of shipments. Meanwhile, the value of goods imports is seen increasing by 32%, with a 20% expansion in volume and a 12% rise in prices. In 2022, it estimates that the value of regional exports and imports of goods will grow by 10% and 9%, respectively, in a context of lower regional and global economic growth.
South America is seen experiencing the biggest increase in the value of exports in 2021 (34%) since, given its export specialization, it will particularly benefit from higher commodities prices. A similar situation is seen in the Caribbean, which will benefit from high prices for the oil, gas and bauxite exported by Guyana, Trinidad and Tobago and Jamaica, respectively. The value of Mexican exports (which are mainly manufactured goods) is seen rising 17%, due mainly to greater volume; Central America faces a similar scenario. Meanwhile, the value of imports is seen growing in excess of 25% in all the subregions and Mexico.
The increase in the region’s goods exports in 2021 is due mainly to higher prices for basic products – above all minerals, hydrocarbons and agro-industrial products – more than greater volume. In addition, regional exports of services have still not recovered from the decline suffered as a result of the pandemic. Specifically, the regional dependence on tourism is much greater than the global average, which has meant that the uncertainty surrounding the reopening of this sector negatively affects the prospects of various economies, especially those in the Caribbean, ECLAC warns. In sum, the recovery of regional trade in 2021 shows significant weaknesses.
“This situation should prompt reflection about the urgency of deepening regional economic integration. Moving towards an integrated regional market is indispensable, not only for generating efficient scales of production and promoting processes of productive and export diversification, but also for achieving greater autonomy in strategic sectors. This last goal has acquired particular relevance in light of the disturbances caused by the pandemic in global supply chains,” Alicia Bárcena stated upon presenting the document.
In fact, the report by ECLAC indicates that there are several factors creating uncertainty for global trade: an uneven pace of vaccination and new variants of the virus; inflationary pressures and difficulties for maintaining fiscal stimulus; trade tensions and risks in China’s real estate sector; disruptions in supply chains; and increased freight costs.
On this last point, it is calculated that the average global cost of maritime container shipping has risen by more than 660% from June 2019 to date.
According to the report, the greatest dynamism is seen in trade with China and within the region itself, although they exhibit very different dynamics. In 2021, the annual variation in the value of regional exports to China is 35%, whereas that figure within the region of Latin America and the Caribbean is 33%. Shipments are seen growing by 23% to the European Union, and by 19% to the United States.
Despite the recovery in intraregional exports in 2021, their participation in total goods exports from the region will amount to just 13% this year, far below the historic peak (21% in 1994 and 2008). Meanwhile, it is forecast that the region as a whole will have a surplus of $24 billion dollars in 2021, below the $64 billion dollars recorded in 2020, which is mainly due to the sharp rebound in the volume of imports.
The second chapter of the International Trade Outlook addresses the challenge of achieving regional productive autonomy in the healthcare industry. Latin America and the Caribbean has a persistent trade deficit in the pharmaceutical sector and just 13% of its imports come from within the region, which puts it in a vulnerable situation when there are disruptions in external supply. In the vast majority of the region’s countries, the local market is not enough to foster a competitive scale of production in the pharmaceutical sector or in that of medical devices. This shows the importance of implementing policies that would promote greater integration of national markets, with the aim of creating a broader, stable market that could provide the incentives needed to expand regional production.
ECLAC’s report dedicates a third chapter to the contribution of international trade to the circular economy. This economy seeks more sustainable use of materials and products, preserving their value and utility for the longest amount of time possible. In this area, the organization calls on the region’s countries to incorporate the perspective of the circular economy into their trade agendas. It also urges for harmonizing rules and regulations among countries and reducing trade barriers with the aim of creating regional markets, as well as increasing recycled inputs and products in the chains of natural resource-exporting sectors, such as mining, agro-industry and forestry.