Mercosur exports of goods fell by 4.1% in 2023, driven by a 7.2% drop in international prices of exported goods, the Economic Commission for Latin America and the Caribbean (ECLAC) said in a new document released today. This occurred within a framework of regularization of the international supply of goods following the COVID-19 pandemic and the start of the conflict between the Russian Federation and Ukraine, which was offset by a 3.2% increase in volumes due to improved agricultural harvests in Brazil and Paraguay.
In a new edition of the Mercosur Foreign Trade Bulletin (No. 7): Opportunities and challenges for regional integration in a scenario of global fragmentation, ECLAC highlights that MERCOSUR experienced a decrease in the growth rate of economic activity to 1.8% in 2023, from 5.0% in the previous year, which exceeded the slowdown recorded by the global economy.
According to the UN regional body, the value of imported goods also fell significantly last year. The 9.5% drop in international prices of imported goods, driven by lower fuel and fertilizer prices, was accompanied by a 2.4% drop in the volume of external purchases, resulting in an 11.7% reduction in the value of imports by the bloc.
“The value of trade between MERCOSUR members showed greater resilience than total trade, registering a growth of 4.2% compared to the previous year. This increase was favored by the dynamism of the manufacturing sector, particularly the automotive complex. In addition, the bloc demonstrated its capacity to cope with the exogenous shock that the drought in Argentina and Uruguay represented for certain value chains, guaranteeing the supply of inputs from the other members of the bloc,” the document emphasizes.
According to the publication, foreign trade in services showed greater dynamism than that of goods, in line with the global trend, and exceeded its pre-pandemic levels. Exports increased by 12.8% compared to the previous year, driven by inbound tourism and modern services, while imports grew by 4.6%, mainly due to the drop in international prices for the transport of goods, which offset the strong growth in outbound tourism.
As a result, the services balance, which is structurally in deficit for the bloc, was reduced to 1.5% of the group’s GDP. With a surplus in goods of 2.7% of GDP, which exceeded the deficit in services, the total trade balance was positive at 1.2% of GDP, which meant an improvement compared to 2022, when trade had been balanced.
In 2024, ECLAC foresees significant challenges associated with the low dynamism of global demand, the downward trend in international prices of the products that the bloc exports, and the persistence of high reference interest rates. The increased exportable supply from Argentina and Uruguay after the drought is in favour of the group’s exports, although these would be offset by a drop in Brazil’s exports. Imports could be reduced if the downward trend in hydrocarbon prices continues, although the conflict in the Red Sea could continue to impact global trade routes and increase freight costs.
The UN regional economic commission highlights that, after several years of little dynamism in the functioning of the bloc, important steps were taken in 2023, including the incorporation of Bolivia as a full member, the approval of a new regime of origin, the regularization of contributions to the MERCOSUR Structural Convergence Fund (FOCEM), and the signing of a trade agreement with Singapore. In contrast, beyond exchanges of positions, no progress has been made in the negotiation of the free trade agreement with the European Union.
In addition to these advances, and in line with previous editions of this Bulletin, it is noted that MERCOSUR continues to have difficulties in increasing its exports, which have grown less than global trade (2.2% annually compared to 2.6%) since the end of the global financial crisis of 2008-2009, in the context of an increasing primarization of exports and difficulties in deepening regional integration.
The growing global geopolitical instability, the search by many countries around the world to “shorten” their supply chains to ensure greater resilience of their economies in the face of disruptive events, and the growing number of trade protection measures, including those originating from environmental protection, could restrict the possibilities of expanding MERCOSUR’s more traditional exports and deepen the bloc’s productive lag, affecting its international insertion.
The organization warns that the green transition represents another major challenge for the external insertion of MERCOSUR. In addition to the risks imposed by extreme weather conditions, which are becoming more frequent and threaten to affect the exportable supply, there is the so-called “green protectionism” of developed countries and their major policies to encourage the transition towards green economies. Hence, MERCOSUR countries face the difficult task of implementing green productive development policies with economic, social and environmental sustainability.
Notwithstanding these challenges, it is argued that they represent a new opportunity to strengthen regional ties and generate productive, technological and demand synergies, emulating the experiences of advanced countries. Successfully achieving this goal will depend to a considerable extent on the support of developed countries, given the significant disparity of efforts that exists.
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