By Isaac Cohen*
Latin America is undergoing another economic growth setback. Between 2014 and 2018 the region as a whole grew at an average annual rate of less than 1 percent and the International Monetary Fund, for this year, projects only 0.2 percent growth. The immediate cause of the fall is found in the end of the so-called “commodity super cycle,” which generated average rates of growth of more than 3 percent during the previous decade. This explanation, also known as the “commodities curse,” views the region’s economic history as a “roller coaster” in the prices of Latin America’s main exports.
However, this begs the question of what is behind the boom and the subsequent bust in commodity prices. The answer is found in what was seen as the almost insatiable demand for commodities, generated by China’s spectacular yearly rates of two digit growth. When China was growing around 10 percent a year, between 2003 and 2008, copper prices increased five times, those of iron ore increased four times and some agricultural product prices, such as corn and soybeans, doubled.
Then, China was purchasing almost half and one third of Chilean and Peruvian copper, respectively, while one fourth of all Brazilian exports went to China. Now, the Chinese economy is growing at half the spectacular rates of the previous decade, with the consequent decrease in demand for commodities. Moreover, since there does not seem to be a disposition to stimulate the Chinese economy, as in 2008 or 2016, the next commodity cycle will have to come from somewhere else.
*International analyst and consultant, former Director ECLAC Washington. Commentator on economic and financial issues for CNN en Español TV and radio, UNIVISION, TELEMUNDO and other media.
