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Regional trade at a crossroads: Assessment and outlook State of affairs 1. Deceleration of world trade 2. International context with recessionary bias: excess liquidity and insufficient demand 3. Structural imbalances: de-linkage between the financial market and the real economy 4. Slow growth and global uncertainty exacerbate the region’s weaknesses 5. The region’s worst export performance in decades (four years of no growth) World trade grew faster than GDP during most of the post-war period… ANNUAL VARIATIONS IN GLOBAL GOODS EXPORTS VOLUMES AND GLOBAL GDP, 1952-2014 (Percentages) 20 15 10 8.6 7.8 6.5 5.4 5.3 3.9 5 2.6 0 -5 European Community 1957 -10 GATT 1947 China’s opening 1978 Fall of the Berlin Wall 1989 Exports Source: ECLAC, on the basis of data from the WTO and IMF. GDP Average export growth 2015 2012 2009 2006 2003 2000 1997 1994 1991 1988 1985 1982 1979 1976 1973 1970 1967 1964 1961 1958 1955 1952 -15 … but it has lost momentum since 2008-2009 ANNUAL VARIATIONS IN GLOBAL GOODS EXPORTS BY VALUE AND VOLUME, 1992-2015 a (Percentages) 30 20 10 0 -10 -20 Price Volume Value Source: ECLAC, on the basis of Netherlands Bureau for Economic Policy Analysis (CPB), World Trade Database. a Figures for 2015 are ECLAC projections. 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 -30 Current account imbalances and their distribution SELECTED GROUPINGS AND COUNTRIES: BALANCE-OF-PAYMENTS CURRENT ACCOUNT BALANCES, 1997-2015 a (Percentages of GDP) 2.5% 1.5% 0.5% -0.5% Surplus countries do not absorb exports of deficit countries Deficit countries have to adjust -1.5% -2.5% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 China Japan Euro Area without Germany and the Netherlands Latin America without Venezuela (B.R.) Germany and the Netherlands USA Oil Exporting Countries Source: ECLAC, on the basis of International Monetary Fund, 2015 External Sector Report, Washington, DC, 27 July 2015. a Figures for 2015 are projections. Lack of reciprocity The financial sector is growing faster and delinking from the real economy EXTERNAL FINANCIAL ASSETS a AND SELECTED REAL VARIABLES WORLDWIDE, 2003-2013 (Indices, 2003=100) 240 220 200 180 160 140 120 100 2003 2004 2005 2006 Exports of Goods and Services 2007 2008 Financial Assets Source: ECLAC, on the basis of data from the IMF, UNCTAD and the World Bank. a Calculated on the basis of each country’s international investment position. 2009 2010 2011 2012 Gross Capital Formation 2013 World GDP Excess liquidity and little effective demand: diminished monetary policy space The main interest rate tends to zero Despite QE, inflation does not pick up EUROZONE, JAPAN, UNITED STATES: POLICY RATES, 2000-2015 (Percentages) EUROZONE, JAPAN, UNITED STATES: INFLATION RATES, 2000-2015 (Percentages) 7 12 10 6 8 5 6 4 4 3 2 0 2 United States Euro Area Japan 2015-05-01 2014-09-01 2014-01-01 2013-05-01 2012-09-01 2012-01-01 2011-05-01 2010-09-01 2010-01-01 2009-05-01 2008-09-01 2008-01-01 2007-05-01 2006-09-01 2006-01-01 2005-05-01 2004-09-01 2004-01-01 2003-05-01 2002-09-01 2002-01-01 -6 2001-05-01 0 2000-09-01 -4 2000-01-01 1 Feb-2000 Oct-2000 Jun-2001 Feb-2002 Oct-2002 Jun-2003 Feb-2004 Oct-2004 Jun-2005 Feb-2006 Oct-2006 Jun-2007 Feb-2008 Oct-2008 Jun-2009 Feb-2010 Oct-2010 Jun-2011 Feb-2012 Oct-2012 Jun-2013 Feb-2014 Oct-2014 Jun-2015 -2 Japan Euro Area United States Source: ECLAC, based on data from the Federal Reserve Bank of Saint Louis, and from the Federal Reserve and the Statistics Bureau of Japan. Aggregate demand is less dynamic after the crisis EURO AREA, JAPAN AND UNITED STATES: CONTRIBUTION OF AGGREGATE DEMAND COMPONENTS TO GDP GROWTH, 2000-2014 (Percentages) 8 6 4 2 0 -2 -4 -6 Japan Private consumption Net exports Source: ECLAC, on the basis of data from the OECD. Euro Area Government consumption GDP growth 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -8 United States Gross capital formation The transition of the Chinese model impacts global growth CHINA: ANNUAL VARIATIONS IN SELECTED ECONOMIC INDICATORS (Percentages) GDP (2000-2015) a Industrial production and retail sales (2010-2015) 16 23 21 14 19 17 12 15 10 13 11 8 9 6 7 Industrial Production Jun-15 Feb-15 Oct-14 Jun-14 Feb-14 Oct-13 Jun-13 Feb-13 Oct-12 Jun-12 Feb-12 Oct-11 Jun-11 Feb-11 Oct-10 Jun-10 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 Feb-10 5 4 Retail Sales Source: ECLAC, based on IMF, World Economic Outlook Database, April 2015 (GDP) and the National Bureau of Statistics of China (for industrial production and retail sales). a Figures for 2015 are projections. Utilization levels have not recovered… INSTALLED CAPACITY UTILIZATION, 1995-2015 (Percentages) United States Eurozone 85% 87% 83% 85% 81% 83% 81% 79% 79% 77% 77% 75% 75% 73% 73% 71% 69% 67% 67% 65% 65% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 69% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 71% Source: ECLAC, based on data from Eurostat and the United States Federal Reserve. … the same happens at the sectoral level and excess capacity sends prices tumbling in China LEVEL OF UTILIZATION OF INSTALLED CAPACITY (Percentages) Automobile industry in Brazil World copper refining 90 88 86 84 82 80 78 76 74 72 70 CHINA: Annual variation of industrial producer prices 2000-2015 a (percentage) 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 China is reducing the imported content of its exports, especially in high-tech products… SELECTED COUNTRIES: IMPORTED CONTENT IN GOODS AND SERVICES EXPORTS, 1995, 2005 AND 2011 (Percentages) CHINA: IMPORTED CONTENT OF EXPORTS BY SECTOR, 1995, 2005 AND 2011 (Percentages) 40 Total Exports 35 Services 30 High-Tech Industries 25 Medium-High-Tech Industries Low-Medium-Tech Industries 20 15 10 Low-Tech Industries 5 Manufacturing (Total) South Africa China India Russia Mexico Brazil Japan Germany United States 0 Mining Agriculture 0 1995 2005 2011 Source: ECLAC, based on data from the OECD/WTO Trade in Value Added (TiVA) database. 2011 20 2005 40 60 1995 80 … while its high-tech exports are gaining market share in developed countries EUROPEAN UNION, JAPAN AND UNITED STATES: STRUCTURE OF MERCHANDISE IMPORTS FROM CHINA, 2000 AND 2014 (Percentages) 100% 90% 16 23 26 80% 70% 19 34 36 40 13 19 60% 21 20 19 50% 40% 30% 20% 10% 0% 2000 2014 United States 2000 2014 European Union 2000 2014 Japan High-Tech Manufacturing Medium-Tech Manufacturing Low-Tech Manufacturing Manufacturing Based on Natural Resources Primary Goods Source: ECLAC, based on data from COMTRADE. Lack of reciprocity and the recessionary bias is stalling trade recovery • Slow growth in the European Union (one-third of global trade). • Import substitution in China results in reduced demand: transition towards a new model • Reduced incentives for further geographical fragmentation of production due to the maturity of China’s and Eastern Europe’s integration into the world economy • Weaknesses in global governance impede the coordinated expansion of world output and productive restructuring in deficit countries The TPP and other megaregional agreements aim to inject dynamism into world trade but... • TPP accounts for: – 36% of world GDP – 23% of world exports, 26% of world imports – 28% of FDI inflows – 43% of outflows – 11% of world population Intra-TPP trade reached US $2.1 trillion in 2014 • WTO-plus commitments in services, investment, government procurement, digital trade • By excluding China, the US wants to write the rules of the game for IP incl. granting extended protection for pharmaceutical patents • Risks include the opening up sensitive sectors such as auto parts and dairy products • Textile sector is sensitive for Central America (due to increased competition from Viet Nam) Latin America and the Caribbean shows its worst export performance in eight decades The region’s foreign trade will experience sharp contractions in 2015 Between 2012 and 2015, the region has its worst export performance in 8 decades LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION IN EXPORT VALUE AND VOLUME, 1931-2015 (Percentages) 80 60 40 20 0 -20 -5.8 -23.4 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 -40 Volume Price Value Source: ECLAC, based on ECLAC, “América Latina: relación de precios de intercambio”, Cuadernos Estadísticos de la CEPAL, Nº 1, Santiago, 1976 and data from regional indices. Regional exports are projected to drop 14% in 2015, the third straight year of ever increasing declines in value LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION IN MERCHANDISE EXPORTS, 2000-2015 a (Percentages) 30 20 10 1.0 0 -15.0 -10 -14.0 -20 Volume Price Value Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics. a Figures for 2015 are projections. 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 -30 Regional imports will drop 10% in value LATIN AMERICA AND THE CARIBBEAN: ANNUAL VARIATION IN MERCHANDISE IMPORTS, 2000-2015 a (Percentages) 30 20 10 0 -8.5 -10 -1.5 -10.0 -20 Volume Price Value Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics. a Figures for 2015 are projections. 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 -30 In 2015, there is a drop in the region’s exports to all its main trading partners LATIN AMERICA AND THE CARIBBEAN: VARIATION IN THE VALUE OF EXPORTS TO SELECTED MARKETS, 2014 AND 2015 a (percentages) -21 Latin America and the Caribbean -9 -19 Asia (inc. China) -6 -17 European Union -6 -16 China -9 -14 World -3 -8 United States -25.0 2015 -20.0 -15.0 -10.0 3 -5.0 2014 Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics. a Figures for 2015 are projections. 0.0 5.0 Trade with China has lost momentum and exports have fallen for two consecutive years LATIN AMERICA AND THE CARIBBEAN : ANNUAL VARIATION IN VALUE OF TRADE WITH CHINA, 2008 to 2015 (Percentages) 130 110 90 70 50 30 10 -10 -30 Exports Jan-15 Jan-14 Jan-13 Jan-12 Jan-11 Jan-10 Jan-09 Jan-08 -50 Imports Source: Economic Commission for Latin America and the Caribbean (ECLAC ) on the basis of data from the National Bureau of Statistics of China. For China, the region is relatively unimportant except as a supplier of commodities CHINA: STRUCTURE OF IMPORTS OF GOODS BY REGION OF ORIGIN, 2013 (Percentages ) 100 10 4 5 20 28 80 54 66 60 53 63 53 44 40 20 27 10 2 6 14 15 8 15 29 11 4 0 Primary Goods (32%) Intermediate Goods (29%) Latin America and the Caribbean Machinery and Equipment (14%) United States Consumption Goods (10%) European Union 11 13 9 8 7 7 Mixed-Use Goods (9%) Total Rest of Asia Rest of the World Source: Economic Commission for Latin America and the Caribbean (ECLAC ), based on the database Trade Flows Characterization of the Centre d’Etudes Prospectives et d’Informations Internationales (CEPII). The largest drops in export value will be in South America and the Caribbean LATIN AMERICA AND THE CARIBBEAN: (SELECTED SUB-REGIONS AND COUNTRIES) PROJECTED VARIATIONS IN EXPORT VALUE, VOLUME AND PRICE, 2015 (Percentages) 10.0 5.0 3.9 0.0 -5.0 3.3 4.6 1.0 -20.4 -3.9 -10.0 -4.1 -15.0 -14.0 -17.3 -20.0 -25.0 -20.8 South America Caribbean Volume Central America Price Mexico Latin America and the Caribbean Value Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics. Commodity prices: the 40 years that were just 9… WORLD PRICES OF SELECTED COMMODITY GROUPS, 2000-2015 a (Indices, 2005 = 100) LATIN AMERICAN AND CARIBBEAN COUNTRIES: PROJECTED AVERAGE VARIATION IN EXPORT PRICES, 2015 250 Caribbean (-20%) 200 Mexico (-9%) Central America (-7%) 150 Colombia (-29%) 100 Venezuela, B.R. (-47%) Brazil (-16%) Ecuador (-29%) 50 Peru (-15%) Bolivia, P.S. (-25%) 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 0 Paraguay (-11%) Chile (-13%) Uruguay (-7%) Energy Non-energy commodities Agricultural raw materials Foods Argentina (-17%) Minerals and metals Source: ECLAC, based on data from the World Bank, the IMF and The Economist Intelligence Unit. a Values for 2015 are estimates. Source: ECLAC based on data from COMTRADE, World Bank, FAO, UNCTAD and the US Departaments of Commerce and Labor. There is a drop in regional terms of trade, except for Central America and non-oil exporting Caribbean countries LATIN AMERICA AND THE CARIBBEAN (SELECTED GROUPINGS AND COUNTRIES): PROJECTED VARIATION IN THE TERMS OF TRADE, 2015 (Percentages) Oil Exporters (Excluding Mexico) -32 Cuba and the Dominican Republic -9 Latin American and the Caribbean -7 Agro-Products Exporters -6 Brazil -6 Mineral Exporters -4 Mexico -3 The Caribbean (Excluding Trinidad and Tobago) 1 Central America 3 -35 -30 -25 -20 -15 -10 -5 Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics. 0 5 Nominal depreciations of several currencies in the region have not boosted exports SELECTED COUNTRIES: MONTHLY NOMINAL EXCHANGE RATE INDEX, JANUARY 2000 to JULY 2015 (Index January 2000 = 100) Source: ECLAC, based on official figures Moreover, the region’s trade deficit as a share of GDP more than doubles in 2015 LATIN AMERICA AND THE CARIBBEAN (SELECTED GROUPINGS AND COUNTRIES): TRADE BALANCES, 2014-2015 (Percentages of GDP) 3.0 2.7 2.5 2.0 1.6 1.5 1.0 0.7 0.5 0.0 -0.1 -0.5 -1.0 -0.2 -0.2 -0.5 -0.7 -1.2 -1.5 Oil exporters Mineral exporters 2014 -1.2 Mexico Latin American and the Caribbean 2015 Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics. Brazil GLOBAL CONTEXT The region is at a turning point: risk global dependency or move towards diversification and regional integration United States European Union China Other emerging economies Slow growth Desequilibria and recessive adjustment Changes in the structure of global trade SURPLUS COUNTRIES Absence of reciprocity DEFICIT COUNTRIES Lack of coordination How does Latin America and the Caribbean fit into the global picture? Export structure: -highly concentrated -anchored in natural resources and low technology goods -weak participation in international value chains Import structure: Outcomes: - worst export performance in 8 decades (-14%) - intrarregional trade plummets in South America (-21%) - regional trade deficit doubles (to 1.2% of GDP) - depreciating currencies - lower (or negative) GDP growth - diversified and intensive in goods with high technological content - dependent on imports of capital goods and intermediate goods What to do? • Reinvigorate intraregional trade • Attract FDI towards non-extractive sectors which favors links with local and regional suppliers • Promote the Trade Facilitation Agenda • Diversify, promote industrialization and innovation and increase local and regional content of production and exports • Weak global governance requires reciprocity and coordinated regional action Intraregional exports fall more than exports to the rest of the world LATIN AMERICA AND THE CARIBBEAN: VARIATION IN INTRAREGIONAL AND EXTRAREGIONAL EXPORTS BY VALUE, 2005-2015 a (Percentages) 40 30 20 10 0 -12 -10 -20 -23 -30 2007 2008 2009 2010 Intra-Regional 2011 2012 2013 Extra-Regional Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics. a Figures for 2015 are projections. 2014 2015 Intraregional trade plummets in South America but grows slightly in Central America SOUTH AMERICA AND CENTRAL AMERICA: VARIATION IN INTRAREGIONAL AND EXTRAREGIONAL EXPORTS BY VALUE, 2007-2015 a (Percentages ) South America Central America 40 25 30 20 20 15 10 10 5 0 2 0 -10 -20 -20 -24 -30 2007 2008 2009 2010 2011 2012 2013 2014 2015 Intra-Regional Extra-Regional -5 -6 -10 -15 2007 2008 2009 2010 2011 2012 2013 2014 2015 Intra-Regional Extra-Regional Source: ECLAC, based on official figures from the countries’ central banks, customs offices and national institutes of statistics. a Figures for 2015 are projections. Trade facilitation helps reduce costs and time to trade in the region • TF is “the simplification and harmonization of international trade procedures" • Especially important in the context of global value chains, which implies more border crossings • It requires a high degree of intergovernmental coordination: – Customs, health inspection, ministries of transport, health, migration, etc. • WTO Agreement on Trade Facilitation (TFA) will soon enter into force • This year ECLAC conducted a survey in the region to measure the degree of progress made on TF measures and readiness for TFA implementation The costs of intraregional trade are higher than the costs of trading with the United States SELECTED GROUPINGS: NON-TARIFF COSTS OF INTRA-GROUP TRADE AND TRADE WITH THE UNITED STATES, AVERAGE 2008-2013 (Tariff equivalents in percentages) Caribbean Central America and Mexico Caribbean a 154% Central America and Mexico b 160% 88% South America c 218% 124% South America Southeast Asia 91% Southeast Asia d 76% European Union e United States European Union 43% 89% 66% 84% 85% 67% Source: ECLAC, on the basis of information of trade costs from the World Bank and Economic Commission for Asia Pacific (ESCAP) database. a Jamaica and Dominican Republic. b Costa Rica, Guatemala and Mexico. c Argentina, Brazil, Chile and Colombia. d Philippines, Indonesia, Malaysia and Thailand. e Germany, France and the United Kingdom. The region is making progress in the implementation of trade facilitation however, the Caribbean lags behind LATIN AMERICA AND THE CARIBBEAN (19 COUNTRIES): TOTAL SCORES IN THE GLOBAL SURVEY ON TRADE FACILITATION AND PAPERLESS TRADE IMPLEMENTATION, 2015 (Percentages of the maximum possible score ) 90 83 82 81 Regional average: 68% 81 77 80 76 76 74 74 74 71 70 70 69 64 60 60 53 50 50 47 40 31 30 20 10 0 Surinam Barbados Bolivia (Pl. State of) Trinidad and Tobago Honduras Nicaragua Uruguay Paraguay Dominican Republic Brazil Peru Panama Guatemala Costa Rica Chile El Salvador Ecuador Colombia Mexico Source : Economic Commission for Latin America and the Caribbean (ECLAC), based on information from the Global Survey of Trade Facilitation and Paperless Trade Implementation 2015 Coordination among government agencies is the main challenge in implementing trade facilitation in the region WHAT ARE THE MAJOR CHALLENGES FACING YOUR COUNTRY TO IMPLEMENT TRADE FACILITATION MEASURES? (Number of mentions) 16 14 14 13 12 10 10 8 6 6 4 4 3 2 0 Lack of coordination Insufficient human Financial constraints Lead agency is not Lack of political will among government resources defined clearly agencies Insufficient IT infrastructure Source : Economic Commission for Latin America and the Caribbean (ECLAC), based on information from the Global Survey of Trade Facilitation and Paperless Trade Implementation 2015 Making progress on the Trade Facilitation agenda is important for the region • To increase the low share of intraregional trade • To improve production linkages within the region and with the rest of the world • To promote the internationalization of SMEs • To promote transparency and coordination among government agencies and fight corruption • Integrate the Caribbean with the rest of the region • National TF efforts would have a greater impact if they are coordinated regionally During the commodity boom, the region increased its dependence on natural resource exports LATIN AMERICA AND THE CARIBBEAN: STRUCTURE OF EXPORTS TO SELECTED DESTINATIONS BY TECHNOLOGY INTENSITY, 2000, 2005 AND 2014 (Percentages ) 100% 90% 80% 70% 60% 50% 40% 68 30% 20% 56 50 48 48 56 10% 21 25 2000 2005 19 24 22 2000 2005 29 0% 2000 2005 2014 2000 European Union 2005 2014 Asia and the Pacific High-Tech Manufactures Low-Tech Manufactures Commodities Source: ECLAC, based on data from COMTRADE database. United States 2014 2014 Latin America and the Caribbean Medium-Tech Manufactures Natural resource-based manufactures This trend is even more pronounced if Mexico is excluded LATIN AMERICA AND THE CARIBBEAN (EXCLUDING MEXICO): STRUCTURE OF EXPORTS TO SELECTED DESTINATIONS BY TECHNOLOGY INTENSITY, 2000, 2005 AND 2014 (Percentages ) 100% 90% 80% 70% 60% 50% 40% 71 30% 50 52 60 52 59 47 20% 45 43 10% 33 25 24 2000 2005 0% 2000 2005 2014 European Union 2000 2005 2014 Asia and the Pacific 2000 2005 2014 United States 2014 Latin America and the Caribbean High-Tech Manufactures Medium-Tech Manufactures Low-Tech Manufactures Natural resource-based manufactures Commodities Source: ECLAC, based on data from COMTRADE database. Policy recommendations • Regional integration: Move towards an integrated space with common rules for trade and investment • Investment in transport and ITC infrastructure: towards an integrated digital space • Value chains for greater resilience of intraregional trade and production and export diversification • Industrial and technological policies with environmental sustainability to grow with equality