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back to index backLATINtalk January,  2017


Will Latin America Regain Prosperity in 2017?

Latin America’s major nations are hoping that 2017 will be the year that they finally recover from the lingering impact of weak commodity prices. For the fourth consecutive year, Latin America’s exports contracted in 2016, according to a report by the Inter-American Development Bank (IDB), using detailed data for 24 countries in the region. In 2016 Latin American and Caribbean exports fell by approximately $50 billion, or 6%. The value of exports was expected to reach $850 billion for 2016, a lower rate of contraction than the 15% drop suffered by the region in 2015. This latest annual decline was due primarily to declining sales to the United States (down 5%) and to the region itself (an 11% contraction), and, to a lesser extent, declining exports to China (down 5%), the rest of Asia (a 4% drop), and to the European Union (minus 4%).

Leaders in Latin America are also pondering what impact incoming U.S. President Donald Trump’s policies will have on the region’s economic growth and global trade in 2017. During his campaign, Trump advocated imposing protectionist barriers on U.S. imports of Latin American goods, which could potentially thwart the region’s attempts to boost exports to earlier, healthier levels. Another uncertainty facing Latin America is how Trump’s economic strategy will impact the value of the U.S. dollar.

The U.S. dollar will appreciate for two reasons, predicts Wharton management professor Mauro Guillen, who is also director of The Lauder Institute. One reason is that interest rates are going to go up. A second reason is that the U.S. economy is probably going to do better than others,” he notes. The rise of the dollar will be bad for countries that are commodity exporters, because commodity prices will tend to go down — and short-term capital flows are likely to hurt countries like Brazil or Peru or Chile,” Guillen says. However, contrary to the conventional wisdom, Mexico will do well because of the stronger dollar, while South America is going to be in a lot of trouble for the same reason.” Unlike the major nations of South America, Mexico is not a commodities exporter, but a major exporter of manufactured goods such as automobiles and electronics. Mexico competes against China, but South America supplies China.”

But while an acceleration of demand, particularly in the United States and in China, could sustain exports” from Latin America to the U.S. and China, the resurgence of trade protectionism” in the United States could bias the forecast,” according to Paolo Giordano, coordinator of the IDB report, and the principal economist of its integration and trade sector.

Another major issue is the ultimate impact of any changes in U.S. policy toward China, which is now the most important trading partner for several countries in Latin America. That is a huge issue for some countries in South America,” notes Guillen. If China starts growing a bit faster, despite changes in U.S. trade policy, the results will be positive for South American commodity exporters, such as Argentina, Brazil, Chile and Colombia. But if it does not, then South America is going to have continuing problems…. If China doesn’t grow as much, as has been the case for the last three or four years, those countries will suffer because China has become their most important customer.”

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Source: Knowledge @ Wharto
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