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Latin America and the Caribbean’s Foreign Trade Will Fall by 23% in 2020 Due to the Pandemic’s Effects

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6 August 2020|Press Release

ECLAC’s new Special Report COVID-19, released today, emphasizes that deepening regional integration is indispensable for emerging from the crisis.

Latin America and the Caribbean’s foreign trade will experience a sharp drop of 23% in 2020 – exceeding the 21% decline recorded during the 2009 financial crisis – as a result of the economic effects arising from the coronavirus (COVID-19) pandemic, ECLAC indicated today in a new report.

At a press conference, the Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena, unveiled the institution’s Special Report COVID-19 No. 6, entitled The effects of the coronavirus disease (COVID-19) pandemic on international trade and logistics, in which the Commission forecasts that the value of regional exports will contract -23% this year while imports will shrink -25%, a figure that also exceeds the -24% recorded during the 2008-2009 financial crisis.

This decline is taking place in a global context in which international trade accumulated a 17% drop in volume between January and May 2020. Latin America and the Caribbean is the developing region most affected by this situation, and it will be marked mainly by reduced shipments of manufactured goods, minerals and fuel.

The collapse of tourism (-50%) will drag down service exports, especially from the Caribbean, while intraregional trade will also undergo a sharp contraction of -23.9%, affecting manufactured goods in particular. All of this will lead to a loss of industrial capacity and a reprimarization of the region’s export basket, the report warns.

“Deepening regional integration is crucial to emerge from this crisis. With pragmatism, we must rekindle the vision of an integrated Latin American market. In addition, the region must reduce costs through efficient, smooth and secure logistics,” Alicia Bárcena stated while presenting the report.

According to ECLAC’s document, the value of the region’s goods exports and imports declined by 17% between January and May 2020 compared with the same period of 2019. Both flows plunged towards the end of that five-month period in 2020, with a 37% year-on-year drop in May alone.

In the first five months of this year, sharp declines were seen in the value of Latin American and Caribbean shipments to the United States (-22.2%), the European Union (-14.3%) and within the region (-23.9%), which together absorbed 69% of its total goods exports in 2019. In contrast, shipments to Asia have shown greater resilience. In particular, exports to China fell less than 2% between January and May and recovered in April and May, in line with that economy’s gradual reopening, which constitutes a positive sign, especially for South American countries that export commodities.

For 2020 as a whole, it is forecast that the biggest contraction in regional exports will be seen among those bound for the United States (-32%) and within the region (-28%), while shipments to China are expected to fall by just -4%.

In analyzing the region’s sectors, the greatest decline between January and May versus the same period of 2019 was seen in mining and oil (-25.8%), followed by manufactured goods (-18.5%). In contrast, the sector of agricultural and livestock products notched a slight increase of 0.9%. That reflects the fact that demand for food is less sensitive to contractions in economic activity, since it is an essential good, the report indicates.

On a country level, ECLAC’s report states that only four nations – all of them in Central America – saw their exports rise between January and May 2020: Costa Rica (2%), Honduras (2%), Guatemala (3%) and Nicaragua (14%). This is due to a combination of greater sales of medical supplies and personal protective gear (especially masks) and of agricultural products (the demand for which has been less affected by the pandemic), along with the relative resilience exhibited by intra-Central American trade.

Meanwhile, imports during this same period fell in all countries (-17.1% in the regional average value), due to the deep recession that the region is undergoing. Particularly worrisome is the contraction in the importation of capital goods and intermediate inputs (-14.5% and -13.6%, respectively), which will affect the investment rate and will compromise the recovery, the publication warns.

In addition, global maritime trade via containers has traced a downward trend since the pandemic broke out. In Latin America, there was a -6.1% year-on-year variation in the period of January-May 2020, with sharp declines in April and May. As a result, port throughput has fallen in the vast majority of ports in the region (with a 1% regional average decline between January and May 2020).

Meanwhile, regional air traffic suffered a true collapse in this period: -95% in terms of passengers and -46% for cargo, following the global trend, while the closure of production-related activities, stricter health measures and administrative obstacles have also served to slow land transportation.

According to the United Nations organization, in a more uncertain and more regionalized global economy, it is crucial that regional integration be intensified. To achieve this, it is necessary to foster regional value chains in strategic sectors, taking advantage of the scale that a market of 650 million inhabitants offers; promote the agenda of “paperless trade” and a common digital market; reduce the region’s vulnerability to external shocks; and bring about a more symmetrical dialogue with the United States, China and Europe.

The report indicates that in order to build back better, Latin America and the Caribbean must reduce its internal costs and promote efficient, smooth and secure logistics through a redesigned investment strategy, greater interoperability of services, regional integration, and the promotion of logistical intelligence.

“In the current context of heightened uncertainty, the region’s countries should take actions that allow them to reduce their internal logistical costs and produce services with value-added to increase their competitiveness. These measures must be implemented in coordination with other economic and social measures to foster an economic recovery with social and environmental benefits,” Alicia Bárcena added.