Latin American Commodities: What's behind the increase in demand and prices?

Latin American Commodities: What's behind the increase in demand and prices?

The commodities prices and volumes in Latin America are showing signs of recovery, after the four years of poor performance that followed the slowdown caused by the global economic and financial crisis. The renewed momentum comes within a context in which global trade is expected to expand by 3.6% in 2017, according to the Latin American and Caribbean Economic Commission (ECLAC) Perspectives on International Trade in Latin America and the Caribbean.

During the commodities boom, the volume of exports grew at 6.3% per annum, but after the crisis growth fell to a meagre 2.2%. Weakened world trade following the crisis was due to diminished global demand, a slowdown in global value chains and reduced liberalization of trade due to the increase in protectionism.

While growth in foreign trade in Latin America and the Caribbean suffered from 2012 to 2016, it has started picking up again, led by primary commodities. According to the ECLAC report, the increase in the value of exports and imports in the first half of this year is mainly due to the increase in prices, growing 8.9% and 5.4%, respectively. The increase in prices for the region’s products contrasts what has occurred in developed economies and in Asia, where growth has been mainly due to the increase in export volumes.

The recovery of the value of Latin American exports in the first part of the year was due to greater overall demand, although the recovery was led by a marked increase in demand from China and the rest of Asia, while exports to the United States expanded at a rate close to the average and those destined for the European Union brought up the rear. Mineral products such as coal and metals, oil and natural gas products saw the highest price increases. In addition to the increase in demand from some of the region's main partners, the rise in regional trade is also due to a recovery in intraregional growth in 2017. Intraregional growth has also been boosted by the "dismantling of tariff and non-tariff restrictions in some countries".

In terms of subregions, Central America has seen the largest increase in exports volumes since the prices of its products have actually decreased somewhat. In Mexico, the volume exported is just slightly higher than the increase in prices. In South America and the Caribbean, the recovery in exports is basically due to an improvement in prices, due to the weight of oil, minerals and metals included in their export baskets, especially in the Andean countries.

Although trade is back on track for growth, medium-term data should be taken with caution due to the uncertainty of the global context. According to the ECLAC report, "doubts persist about the sustainability of this upturn, given the high level of uncertainty in the macroeconomic, technological and geopolitical areas," especially in developed countries.

*Guest blog post from Latinoamerica21

latinoamerica21_logo.jpgJeronimo Giorgi, a Uruguayan journalist dedicated to international issues, is pursuing a master's degree in Latin American Studies. He has collaborated with various media outlets in Latin America and Europe, and has received distinctions such as the Premio Rey de España for Journalism.

Latinoamerica21 is a blog about current economic, political and social topics in Latin America that is currently published within the newspaper El Observador de Uruguay and Pagina Siete in Bolivia, and will soon be published in other media outlets within the region. The original version of this blog post is available in Spanish: América Latina menos expuesta a las crisis económicas que en el pasado

Follow Latinoamerica21 on Facebook and Twitter.

*Guest blog posts do not reflect the views of FocusEconomics. 

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Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.

Date: November 3, 2017

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