Broken China should scare LatAm
Any slowdown in the economy of the country that consumes so much local output will bring short-term pain and should be a long-term warning.
Latin America can never afford to be insular, but there has been a certain amount of navel gazing this year – an understandable impact of so many presidential elections in the region at more or less the same time.
But China too has moved front of mind for the first time in years, especially the risks from an economic slowdown. That country’s trade dispute with the US is the catalyst, but it is also helping throw into sharp relief the vulnerability that some Latin American countries have to the state of the Chinese economy.
The main transmission mechanism is trade, both in nominal trade amounts and the effects of Chinese demand on certain commodities – and, through them, some Latin American currencies.
These currencies are showing the first signs of a China crisis. As the renminbi has declined, so too have the currencies of Brazil, Chile and – to a lesser extent because it is managed in a tight band – Peru.