South & Central America
all you need to know
After a 7% contraction in 2020, the sharpest in the world, the IMF predicts that South and Central American GDP will grow by 4.6% in 2021 and 3.1% in 2022. This is significantly below the average predicted growth rate for emerging markets of 5.8%.
However, these regional forecasts mask significant differences between countries and different demographics. Argentina is set for economic growth of 5.8% this year; while in Brazil, the economy will grow by just 3.7%.
As ever, the region is highly sensitive to fluctuations in the commodities market. In the first quarter of 2021, exports from the region to China grew by 35%, year on year. By comparison, exports to Europe and the US grew by just 4%.
The disparity reflects Chinese demand for Latin American raw materials such as copper, zinc, and iron ore. To take one example, thanks to the return of Chinese manufacturing demand, by the end of 2021, there will be orders for 145,000 tons of copper in excess of what the market can supply. The result has been a 30% increase in the price of copper. South America produces 57% of the world’s annual copper exports. The stories for other commodities are similar.
This is fine, as long as commodity prices are rising. But if demand slackens and prices fall, overexposure to the commodities markets threatens the region’s economic prosperity. There doesn’t appear to be a near-term danger of this, not with the electrical-vehicle boom boosting demand for commodities. On the other hand, by mid-2021, growth in China’s industrial output had fallen to 6.4%, down from 8.3%. If this slump continues, it could hit demand for commodities.
South and Central America were also hit particularly hard by COVID-19. During the peak of the crisis, from 2020 through to summer 2021, the region had the second-highest cumulative death rate in the world, despite having a much younger population than regions such as Europe and North America.
By mid-2021, however, there were signs of hope. Boosted by a relative absence of the vaccine hesitancy seen in other regions, Latin America’s vaccination effort was catching up to other regions. Two thirds of people in Chile and Uruguay, for instance, were fully vaccinated by the end of summer.
With the exception of Argentina, where inflation is 42%, South and Central America haven’t seen the price increases evident elsewhere. However, inflation is still above target in many of the region’s major economies, raising the prospect of central banks putting up interest rates in the near future.
Quick facts about the region
Conclusion
South and Central America is an increasingly attractive prospect for e-commerce merchants and their partners. The massive growth in financial inclusion, along with widespread connectivity and increasing acceptance of online retail, creates new opportunities with a broad range of demographics. For merchants who are able to localise and who work with partners that know the local market, the opportunities are huge.
