Updated: Nov 18, 2020

In the report “The Big Switch: Restoring Growth through Trade”, the World Bank (WB) considers trade an essential factor for the future growth of Latin America.

According to the BM, countries in Latin America and the Caribbean are beginning to show signs of economic recovery and an increase in the volume of exports, which include higher quality products.

In 2016, the region’s economy is expected to contract by 1.1%, but the following year, regional GDP is expected to recover by 1.8%. This increase is due to the expected growth of 1.5% in South America in 2017. It is worth noting that Mexico, Central America and the Caribbean (a subregion that depends less on commodity exports and is more linked to economic recovery of the United States) will continue with positive data this year (2.4%) and next year as well (2.7%).

The report warns of the constant reduction in the prices of commodities exported by the region and warns that it will not be able to depend as much on domestic demand to grow, as it did during times when raw material prices were higher. To increase economic activity in Latin America, it is crucial to turn attention to external buyers.
However, when the region is ready to make the necessary efforts and strengthen its presence in international markets, it seems that the world is heading in the opposite direction, as global trade is in decline due to reduced imports by China and of East Asia.

The fall in raw material prices, combined with other external factors, has been bringing down Latin American economies. These economies must carry out reforms in order to achieve what is expected for 2017, which will be generalized to the entire region, except Venezuela.

Lower demand from China and other international economies and increased interest in the United States of America have affected the growth possibilities of the entire Latin American region, a region for which the World Bank recommends the transition to a new economic paradigm.

The good news for the subcontinent is that there is evidence that Latin American countries are increasing the production of processed products for export, including new and better quality products, which find niche markets in the United States and Europe. The Latin American region has also made an effort to replace imports from outside the region with products and services produced effectively within the region. Countries with a flexible exchange rate have also sought to diversify their exports and their destination.

The pending macroeconomic adjustments are concentrated in South America, where most of the commodity exporting economies are located and which have suffered most from the fall in prices. Peru, Chile and Paraguay fulfilled their adjustments and can now focus on other equally important themes, such as the fight for greater social equity.

Countries that manage to balance their macroeconomy will have more opportunities in the future to invest more and better in education and infrastructure, which are essential to support the shift towards greater production of tradable goods and services. Without this change, it will be difficult for the region to achieve the levels of growth necessary to recover the social gains seen in the commodities boom.

The World Bank thus reiterates the need for a major change that consolidates the growth expected for 2017 in Latin America to overcome the recession in 2016 caused by the drop in raw material prices, the lack of structural reforms and new export-oriented productive sectors. .

Augusto de la Torre, chief economist for Latin America and the Caribbean at the World Bank, recommended that this region invest in greater exploration of regional integration, in a productive change in the export sectors and in domestic demand that is less dependent on consumption. For South American economies, it will be very important to strengthen external demand with the incorporation of new export sectors that complement those of raw materials.

Regional integration can also create a more efficient region and can be one of the recipes for greater Latin American growth potential.

However, there are risks to the non-consolidation of Latin American growth. If international trade does not recover, if China’s growth is not as expected and if external demand reduces much further, Latin America will find it even more difficult to recover and improve its economic situation.