After a drop in the value of exports by 16 percent in the first half of 2020, the recovery of trade in Latin America and the Caribbean is still uncertain due to the new outbreaks of COVID-19 and the economic impact caused by the pandemic, according to a study by the Inter-American Development Bank.

The 2020 edition of the Trade and Integration Monitor, which analyzes trade flows in the region, says the downturn was mainly caused by a drop in export volumes, which in turn were driven by the economic impact of the pandemic.

The value of exports from Latin America and the Caribbean contracted more than global trade, which dropped by 13.3 percent year-on-year in the first half of 2020.

The pandemic affected international trade in services more severely than trade in goods. Service exports from Latin America and the Caribbean entered negative ground for the first time since 2015, contracting at an estimated rate of 29.5 percent year-on-year in the first half of 2020.

“So far, the trade shock has been less intense than was initially predicted, and we are beginning to see some signs of recovery,” said Paolo Giordano, Principal Economist at the IDB’s Integration and Trade Sector, who coordinated the report. "However, new outbreaks and lockdown measures may affect the recovery of global trade, which had already weakened even before the health crisis hit."

Latin America and the Caribbean’s trade performance was particularly affected in the first half of 2020 by the downturn in exports to large markets such as the United States (-19.5 percent), the European Union (-18.6 percent), and China (-1.0 percent).

However, the drop in intraregional trade was sharper. These flows fell by 30.3 percent in the Andean Community, 24.6 percent in MERCOSUR, 24.0 percent in the Pacific Alliance, and by 8.8 percent in Central America and the Dominican Republic. As a result, the share of intraregional flows in total trade from Latin America and the Caribbean continued to shrink, accounting for just 12.8 percent of the total.

Although the downturn affected the entire region, it was felt the most in Mexico and the South American energy-exporting countries, largely in response to oil prices, which plummeted by 29.2 percent between January and August 2020.

Imports from Latin America and the Caribbean fell 17.1 percent year-on-year in the first half of 2020, mainly impacting Mexico (-19.5 percent), Central America (-17.4 percent), and South America (-15 percent).

The report concludes that countries should adopt an ambitious international integration agenda and consolidate the regional value chains to attract new investments and take advantage of nearshoring opportunities in both goods and services. Priorities include strengthening export promotion and investment attraction agencies, improving trade facilitation and modernizing customs facilities, diversifying the services sectors, and promoting trade digitalization, among others.

The report also notes that pragmatic initiatives to reduce transportation costs will be critical if Latin American and Caribbean economies hope to compete in the global production networks of the future. It also recommends strengthening regional integration and cooperation initiatives to ensure the region’s economies are operating in an efficient, reliable, regulatory space that is attractive for investors.