Cartagena, Colombia – 11 December 2015 – Latin America’s GDP growth slowdown deepened and is expected to be negative in 2015. For a second consecutive year, Latin America falls behind the average growth of OECD countries after a full decade of convergence with advanced economies, according to the Latin American Economic Outlook 2016.
Weaker global growth, lower commodity prices and a loss of investment momentum are having an impact on the region’s growth. However, Latin American and Caribbean economies are not homogeneous: manufacture exporters in Mexico and Central America are recovering, whereas Andean countries struggle to maintain growth and two key economies –Brazil and Venezuela – are now in recession.
In their annual jointly produced report, the OECD Development Centre, the Economic Commission for Latin America and the Caribbean (ECLAC) and CAF – Development Bank of Latin America call for an enhanced Latin America-China partnership. As the China-led Shifting Wealth phenomenon – where the global economy’s centre of gravity is shifting more towards emerging economies – enters a new phase, affecting the global economy, Latin America should try to face the challenges of addressing its inclusive growth agenda, say the Outlook’s authors.
“The middle-income trap is a persistent challenge for Latin America, which needs to pursue a greater degree of productive diversification, upgrading and integration. China’s new normal is a wake-up call and an opportunity for the region’s development strategy towards these goals,” OECD Development Centre Director, Mario Pezzini, said while launching the Outlook at the First Meeting of Foreign Affairs Ministers of the Ibero-American Conference in Cartagena de Indias on December 11th.
Since 2000, the trade relationship between Latin America and China has experienced an exceptional expansion, multiplying 22 fold, compared to a 3 fold increase with the world at large, says the report.
The evolution of China’s participation in Latin American global value chains has been remarkable and has even surpassed intraregional ones: between 2000 and 2011, the region’s intraregional share of backward linkages grew from 5% to 9%, and China’s share roared from 1% to 11%. Today, China is the largest trading partner for Brazil, Chile and Peru.
Latin America has to advance in its integration agenda, building on existing platforms such as Mercosur, the Pacific Alliance and CARICOM to grasp the benefits of higher integration in global value chains.
Ms. Alicia Bárcena, ECLAC’s Executive Secretary, called for “better integrated regional markets, since they offer opportunities to serve larger consumer demand, achieve economies of scale and attract greater foreign direct investment, combined with measures enhancing competition and better access to global value chains.”
Integration is all the more key as lower Chinese demand for commodities, together with a fall in prices, is set to continue affecting Latin American commodity exporters over the next decades. According to the Outlook’s projections, Latin America’s export growth will slow from 16% to 4% by 2030 in the case of metals and energy, and from 12% to 3% for food.
To seize the momentum of the new opportunities propelled by China’s new normal and to remain competitive, Latin American and Caribbean economies need, first, to pursue innovative development policies to better cater to growing Chinese domestic demand, notably in the agro-food industry and services. Designing policies and a truly effective strategy in skills and innovation will also be essential to keep up with how China is strengthening its human capital. By 2030, nearly 200 million Chinese will have attained tertiary education, doubling the number of Latin America’s graduates.
“Latin America and China must work together in the deepening of a dynamic, long-term and strategic relationship based on a common agenda. Such a relationship should promote symmetry in trading relations, technology transfers and strategic investments,” said Enrique García, CEO and President of CAF – development bank of Latin America.
Existing financial ties between the region and China need to be deepened and optimised. Chinese loans to Latin America have reached USD 94 billion since 2010, with China becoming the region’s largest lender. This trend is likely to persist, expanding to new countries and sectors. However, according to the Outlook, lending should be matched by greater transparency and regulation, particularly vis-à-vis environmental impacts.
Shifting towards skill- and technology-intensive industries and optimising financing flows to close the infrastructure gap could help maximise benefits offered by China’s new normal. In this way, China can maintain Latin America as a reliable source of commodities, a sound market for its exports and an attractive destination for diversifying its outward investment.
For more information on the Latin American Economic Outlook 2016: Towards a new partnership with China, visit: www.latameconomy.org.
To obtain a copy of the report, journalists are invited to contact Bochra Kriout (Bochra.Kriout@oecd.org; Tel: +33 1 45 24 82 96).