Impact on Latin America of growth declines in China and the United States

Abstract

Economic activity in China and the United States is projected to slow down in the future due to cyclical forces, population aging and slow productivity growth. In addition, global commercial and technological tensions could lead to a faster deceleration in the short term. These trends will impact other countries, including Latin America. This bibliographic research work is a review of articles that seek to quantify this impact with empirical techniques and statistical models. The results show a greater impact on the countries most exposed to China or the United States through trade, commodity prices and financial flows. For example, a temporary drop of 1 percentage point in China's growth would reduce the growth of Chile and Peru — the two countries most exposed to China — by 0.2–0.3 percentage points. A similar shock in the United States would decrease the growth of Costa Rica and Mexico by 0.5 percentage points. These effects would be much greater if the slowdowns in China and the United States lead to a tightening of financial conditions in emerging market economies, including Latin America.