The 2020 edition of the Trade and Integration Monitor identifies the factors underlying recent developments in trade flows of Latin America and the Caribbean (LAC), examines current risks, and concludes that the current crisis is less intense than initially expected. However, the recovery remains unstable even though exports have rebounded recently.
The sudden deterioration of prices and real flows were the main explanatory factors behind the decline in the value of LAC goods exports. Services exports also began to contract for the first time since 2015. There have been some signs of improvement since June, but projections for the second half of 2020 suggest that significant risks to recovery remain.
The COVID-19 pandemic plunged the world and LAC into the most acute trade contraction since the Global Financial Crisis. Goods exports from LAC had already fallen by 2.4% in 2019 after just two years of growth. The year-on-year contraction accelerated from 3.5% in the first quarter to 27.5% in the second. In the first half of 2020, the average year-on-year variation rate was –16.0%. Unlike the trade contractions of the last decade, the main driver of the current crisis was the drop in export volumes. In real terms, the region’s external sales contracted more than global trade (–12.1% and –8.9%, respectively). Commodity markets, particularly those of energy goods, reacted quickly to the pandemic, causing a 5.2% contraction in export prices that also contributed to depressing the value of LAC’s external sales. The variation rate of exports of services from LAC moved onto negative ground for the first time since 2015, going from 1.1% growth in 2019 to a contraction estimated at 29.5% year- on-year in the first half of 2020.
Although the pandemic has not impacted trade flows as much as initially expected and relative improvement has been observed since June, the most recent trend indicators point to a slow recovery of export flows to precrisis levels. Looking ahead, there are growing risks associated with the instability of external demand as a result of new lockdowns and social isolation measures, the volatility of commodity markets, and the indirect effects of global trade tensions, as well as the forecasts of a contraction in intraregional trade, given that the region is continuing to be hard hit by the pandemic.
Although most of the contraction was explained by the drop in extraregional trade flows, the downturn in intraregional trade was more intense. Trade flows within every integration scheme contracted more than trade with the rest of the world. This intensified a trend toward intraregional trade losing relative weight that was also observed in 2019.
In the first half of 2020, the contraction in exports to the US (–19.5%), the EU (–18.6%), and, to a lesser extent, China (–1.0%) played a decisive role in LAC’s trade performance, explaining around two-thirds of the overall downturn. However, intraregional flows fell at even higher rates within all LAC blocs: –30.3% in the Andean Community, –24.6% in MERCOSUR, –24.0% in the Pacific Alliance, and –8.8% in Central America and the Dominican Republic. Similarly, a limited sample of Caribbean countries suggests that intrazone exports from the region contracted by 25.4%, excluding Guyana whose notable increase in oil exports set it apart. In MERCOSUR, the contraction in intrazone sales caused by the collapse of bilateral trade between Argentina and Brazil played a decisive role in the drop in total exports, while Brazil saw an extraordinary increase in soybean shipments to China. On balance, and in keeping with the trend that was observed in 2019, the share of intraregional trade flows in total LAC trade continued to shrink, reaching 12.8% of total trade flows, a drop of 1.2 percentage points in comparison with 2019.
Chapter 1 of this report examines the main features of the downturn in global and regional trade that has been observed since early 2018, tracks the impact of the COVID-19 pandemic on trade in 2020, and assesses the balance of global economic risks. Chapter 2 provides an overview of the region’s recent trade performance, break – ing down the variation in prices and export volumes and assessing the likelihood of a trend reversal in the coming months. Chapter 3 examines the specific features of export and import flows of goods and services in different countries and subregions of LAC. Chapter 4 analyzes the downturn in intraregional trade and examines the export performance of LAC’s main integration blocs. The conclusions discuss the challenges the region must tackle in order to strengthen the participation in the post-COVID-19 global value chains. 1 The Impact of the Pandemic on Global Trade.Trade-and-Integration-Monitor-2020-The-COVID-19-Shock-Building-Trade-Resilience-for-After-the-Pandemic
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