Latin America’s trade momentum is expected to slow down in 2023 due to recent developments in global and regional trade amid the conflict between Russia and Ukraine, record-high inflation rates, the global economic slowdown, geopolitical tensions and the difficulties faced by China regarding the COVID-19 pandemic. Deepening regional integration and leveraging the opportunities associated with nearshoring have become the most attractive options to ramp up results for the year.
The outlook for world trade in 2023 is not favorable, given worldwide conflicts. Trade of regional goods continued to recover in 2021 and 2022, but in the latter year with weaker momentum and driven mainly by higher prices for several of the region’s primary export commodities, especially oil. According to the Economic Commission for Latin America and the Caribbean’s (ECLAC) most recent report, the volume of world trade in goods in 2022 was initially projected to grow by 4.7 percent. In the first eight months of 2022, the volume grew by 4.5 percent year-on-year (YoY), which stays close to initial projections. However, in October, the World Trade Organization (WTO) lowered its growth projection for 2022 to 3.5 percent and 1 percent for 2023.
“It is urgent to advance in creating a large and stable regional market that generates efficient scales of production and fosters intraregional production linkages,” stated ECLAC. Latin America and the Caribbean exhibit lackluster performance although some countries, such as Mexico, have proven to be exceptions given their location and commercial treaties.
The pandemic and the conflict in Ukraine have highlighted the region’s heavy dependency on external supplies of strategic products such as medicines, medical devices and fertilizers. “Continental integration would be an extraordinary thing, but it is very complicated due to issues of legislation and regulations. The economies are disparate, so integration is complicated, but we have the dream of the American continent. We can continue, there is much life ahead of us,” says Sergio Contreras, Executive Vice President, COMCE.
On average, Mexico accounted for 57 percent of the region’s manufactured exports between 2019 and 2021, followed by Brazil, Chile and Argentina. The US is the main destination market for the region’s manufactured exports, with a 57 percent share in the 2019-2021 period, followed by the region itself with 15 percent, according to ECLAC.
There continues to be a lack of collaboration in the Americas, however, which is a great opportunity for the region to become a “self-sustaining” and primary investment center — not only involving Latin America, the Caribbean and Mexico but also North American players. During the North American Leaders Summit (NALS), Canadian Prime Minister Justin Trudeau said that the North American region is home to half a billion people, has an extraordinarily strong innovation ecosystem and a combined Gross Domestic Product (GDP) more prominent than the EU. “Now we have a better deal, which shows that we are, and always will be, stronger together,” says Trudeau.
There is a unique opportunity for the region, which could drive the future of trade in favor of the Americas, due to the geopolitical tensions between the US and China, the supply chain disruption caused by the war in Ukraine, China’s COVID-19 lockdowns and the growing interest in nearshoring.