Why South America's exports will drop this year

The US-China trade dispute will cause a drop in South American exports this year, especially when compared to other Latin American countries, because of the still high dependence on commodities.  

In addition to a Chinese economic slowdown, which depresses commodities demand, major economies such as Brazil's are also struggling to achieve an economic turnaround. 

The value of South American exports is projected to contract 6.7% this year, while exports from Central America, the Caribbean and Mexico will expand 2.6%, 3.7% and 2.8%, respectively, according to a study by Cepal. 

 “This [projected contraction of exports] reflects the economic stagnation the subregion is going through — with projected growth of just 0.2% in 2019, hurting intraregional trade — compounded by the high proportion of commodities in its export basket, for which prices have fallen in several cases,” Cepal said. 

Brazil's exports are expected to contract 5.6% this year, Paraguay’s 8.8%, Chile’s 6.6%, Peru’s 7.2%, and Venezuela’s by around 50%. 

“Only three South American countries (Argentina, Ecuador and Uruguay) are expected to see the value of their shipments increase in 2019, driven by an increase in the volume of commodity exports,” according to Cepal. 

The projected fall in exports highlights the urgency for regional players to forge closer ties despite deep ideological differences. Brazil's Jair Bolsonaro, for example, sees Argentina's president-elect Alberto Fernández as an antagonist.

“Brazil's and Argentina's leaders must understand very quickly that working together will be better for all sides, fueling trade of the Mercosur bloc with other nations,” the head of Brazil’s exporters association AEB, José Augusto de Castro, told BNamericas.

Argentina is Brazil’s third largest trade partner, after China and the US.

DOING BUSINESS 

Boosting exports is just one challenge the Bolsonaro administration faces. 

According to the World Bank's recent Doing Business report, Brazil dropped to 124th place this year, from 116.

Although the government is pursuing certain reforms, they come at a slow pace compared with other countries. After the recent approval of the pension reform, the government now wants to advance on tax reform, simplifying the entire system.