General

A series of data released recently shows that although the economies of major Latin American economies represented by Brazil and Argentina achieved growth in the first half of this year, the growth rate has slowed down significantly compared with the same period last year. Inflation and lack of foreign exchange, many countries are facing severe economic crisis. Beware of refusal or abandonment of goods at the port of destination.

Under the influence of high inflation and tightening monetary policy in major economies in Europe and the United States, especially under the influence of the spillover effect of the Fed's continuous aggressive interest rate hikes, major Latin American economies are facing severe challenges such as rising inflation, depreciation of local currencies, and capital outflows. Great downward pressure.

       overall growth slows

Although major Latin American economies such as Brazil and Argentina have performed well in foreign trade this year, the growth prospects of these economies are hardly optimistic. Paul Roberto Feldman, a professor at the School of Economics and Management at the University of Sao Paulo in Brazil, believes that high unemployment, high inflation and the appreciation of the dollar are the three main factors hindering Brazil's economic growth.

Brazil's Foreign Trade Association recently predicted that Brazil's total trade volume is expected to hit a new high this year. Argentina's exports in the first half of this year hit a record $44.377 billion, up 25.5 percent year-on-year. Experts said that Brazil, Argentina and other countries export mostly agricultural products, but the local agricultural automation is very high, and the new high foreign trade cannot solve the domestic employment problem.

Data show that in the first half of this year, Brazil's gross domestic product (GDP) grew by 1%. Brazil's economy ministry forecasts that the country's economic growth will slow to 0.7% in the second half of the year. Market participants generally believe that 2023 will be a very difficult year for the Brazilian economy as the negative impact of temporary economic stimulus measures gradually emerges.

The Argentine economy faces challenges such as excessive foreign debt, severe inflation and severe devaluation of the local currency. The International Monetary Fund forecasts that Argentina's economy will grow 4 percent this year, down from 10.3 percent last year.

According to data released by the Central Bank of Chile in June, the country's economic activity has continued to slow this year, and the annual economic growth is expected to be 1.5% to 2.25%, and the growth rate will be zero or negative in 2023.

High inflation is the main reason

Latin American scholars and economic experts generally believe that the current Latin American countries are generally facing shocks such as high inflation and the depreciation of their currencies against the US dollar.

According to data from the Brazilian Institute of Geography and Statistics, in the 12 months ended June this year, Brazil's national broad consumer price index rose by 11.89%. The country's inflation rate was 12.5 percent in June, well above the 3 percent target, data from Chile's National Statistics Institute showed. Argentina's cumulative inflation rate in the first half of the year was as high as 36.2%. Inflation in Mexico hit 7.99% in June, the highest level since 2001.

Accompanying the high inflation is the severe depreciation of the local currencies of many Latin American countries against the US dollar. The exchange rate of the US dollar against the Chilean peso once exceeded 1 to 1,000 this month, a record high.

Lizardo Gomez, dean of the International Business School of the University of Valparaiso in Chile, believes that the severe devaluation of the Chilean peso has affected the price formation mechanism of the foreign exchange market.

Victor Salas, an economist at the University of Santiago in Chile, said that people previously believed that high global inflation was temporary, but the Fed's interest rate hike has deepened the expectation that inflation pressures will be prolonged.

U.S. monetary policy becomes the main source of risk

The Federal Reserve has raised interest rates sharply since the beginning of this year, and the spillover effect has spread to Latin American countries. Latin American countries have to take measures such as raising interest rates one after another. Since June, Brazil, Mexico, Argentina, Chile, Peru and other countries have raised interest rates sharply. Argentina's central bank raised its benchmark interest rate by 300 basis points to 52% in June, having raised interest rates six times in the first half of the year.

Mexican scholar Sergio Negrete believes that the Fed's interest rate hike has a "very strong" impact on Latin American emerging market countries such as Mexico, and capital flows out of these emerging markets in large numbers.

Jorge Marchini, an economics professor at the University of Buenos Aires in Argentina, said: On the one hand, the Fed's interest rate hike will lead to an accelerated flow of funds from peripheral countries to the United States. On the other hand, raising interest rates means that the debt burden of neighboring countries will increase, affecting economic recovery and growth.

Marchini believes that the effect of the Fed's continuous sharp interest rate hikes to curb domestic inflation in the United States remains to be seen, but it is certain that the US monetary policy ignores the interests of other countries, and the recovery prospects of neighboring countries and even the world economy will be adversely affected.

We hereby remind all foreign trade people to pay attention to the risk control of collection and delivery when exporting to these countries, beware of the risk of refusal to pay and abandon the goods at the destination port, and avoid any unnecessary losses or troubles~