According to a recent article in The Economist, the impact of the virus on emerging-market financial markets and on commodities is rapidly affecting Latin America and, in particular, South America’s large commodity exporters. The Economist Intelligence Unit, however, believes that “the decline in prices of key commodities for the region, such as oil and copper, will prove transitory, and some recovery based on our provisional baseline scenario for the spread of coronavirus in China would be expected in the second half of 2020.”
The Intelligence Unit believes that “downward revisions to GDP growth forecasts are likely to be limited to countries most exposed to commodity prices and to demand from China, including Chile and Peru. However, substantial downside risks to other large economies in the region, including Brazil, Argentina and Colombia, are clear.”
The disruption to China’s economy from coronavirus will have direct and indirect impacts on Latin America this year, the article goes on to state. ”We expect coronavirus to dampen China’s consumption, private investment, and export and import growth, which will have a direct impact on Latin American economies that rely on trade and investment with China to drive growth.”
Among Latin America’s six big economies, according to The Economist, this reliance varies dramatically. Mexico’s exports to China represent less than 2% of its total; in Peru and Brazil, exports to China account for over 25% of all exports, and in Chile they account for over 33% of the total. The direct impact, however, will also depend on how important trade is to these economies, and again this varies substantially among countries: “Trade accounts for only around 30% of GDP in Brazil and Argentina; in Peru it accounts for almost 50% of GDP and in Chile it accounts for almost 60% of GDP. On balance, Chile and Peru appear to be most exposed to the direct impact of weaker import demand from China.”