Growth prospects in Latin America remain stable

Because of Trump, the region will seek to expand relations with other partners. China in particular will benefit from this, but Europe also has a historic opportunity to strengthen cooperation.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

Economic forecasts for Latin America have rarely been as difficult as this year. Mexico got a foretaste of this when the US president announced a  import tax on imports from its southern neighbor.

The Mexican economy would immediately slide into a recession that could last until at least the end of 2026, according to the rating agency S&P. 80 percent of Mexican exports go to the USA. Around 4.5 percent of the economy depends on remittances from the estimated 37 million Mexicans in the USA.

However, the Trump uncertainty factor in Latin America must be put into regional perspective. While the Caribbean, Central America and Mexico are heavily dependent on the new government’s decrees and the outlook is correspondingly uncertain, this is far less true for South America.

The region’s commodity exporters such as Argentina, Brazil, Chile and Peru are hardly dependent on the North American sales market. On the contrary: under the first Trump administration (2017-2021), South American commodity economies benefited from rising exports to China. There, they replaced US exports that were lost due to Chinese sanctions against North American imports.

Most observers currently rule out a similar substitution effect, as China is also unlikely to increase imports of ores, metals and agricultural goods due to its economic stagnation.

The outlook for the Latin American economies is therefore quite stable – apart from the Trump effect: JP Morgan estimates that the region will grow by 2.2 percent this year, slightly more than in the previous year.

The slight increase is mainly due to Argentina, which could grow significantly again for the first time this year under President Javier Milei (5.5 percent). The investment bank also expects stronger growth than last year for Colombia (2.5 percent) and Ecuador (1. percent). However, in view of the difficult political framework conditions in these countries, these forecasts should be treated with caution.

In the other major economies, growth will be weaker compared to 2024. However, none of Latin America’s six major economies will stagnate or even slip into recession.

However, the new administration in Washington and the associated uncertainty will prompt governments in the region to look for new trading partners.

Trump’s unpredictable course towards Latin America is a particularly good opportunity for China. In 2024, China strategically expanded its cooperation in South America: Beijing granted Argentina a loan, opened one of the continent’s largest ports in Peru and adopted a major investment and cooperation package with Brazil.

This will allow China to seamlessly intensify its involvement in South America. The countries will welcome Chinese investment in infrastructure when other investors such as the USA withdraw or Europe is preoccupied with its own crises.

In the second half of the year, the BRICS summit in Brazil will provide a political forum that China will use to demonstrate its new ties with South America. It is quite possible that the USA will respond to such a demonstration of power in its sphere of influence with sanctions. These would primarily affect Brazil.

For Europe, the possible confrontational course of the USA towards Latin America offers a historic opportunity to establish itself as a reliable partner. The prospects for a revival of the EU-Mercosur agreement have improved – despite all the political uncertainties that could continue to hinder the realization of the bi-regional economic community in both Europe and South America.

Europe should seize this opportunity and invest massively in relations with Latin America – both literally and figuratively.