When the 2008 financial crisis seized international trade and sent the European Union and the United States into recession, the immediate effects on Latin America were surprisingly muted. Bouncing back strongly, Argentina and Brazil saw gross domestic product growth rates of 9.2 percent and 7.5 percent, respectively, in 2010. While the recovery was brief in both cases, Chinese demand for South American commodities was an important factor. For a range of countries, Chinese demand has been an important external driver of growth. Brazil, Chile and Peru have all seen China rise to become the top customer, particularly for metals.
The primary driver of Chinese demand has been a boom in construction, which has consumed Peruvian and Chilean copper as well as Brazilian iron as building materials. At the same time, population growth and rising wealth have driven demand for soybeans in China. China is the biggest national importer of soybeans, consuming more than 40 percent of the globally traded supply. Brazil, Uruguay, Paraguay and Argentina are home to some of the world's best soybean cropland outside of North America, and together they supply about 26 percent of the market.
In the near term, potential for instability in China's economy poses serious questions for Latin America. China's growth has begun to slow, and while still high at around 7.4 percent year-on-year for the first quarter of 2014, the economy is visibly changing. Recent reports of bankruptcies or near-bankruptcies in the real estate sector underline the fragility and potential for instability in the one sector that has been driving demand for copper from Chile and Peru and iron from Brazil. More broadly, a slowdown could affect a range of activities from shipbuilding to infrastructure development that also consume Latin American iron and copper. A slowdown in metals exports presents the biggest risk to Brazil, along with Peru and Chile, of a sharp reduction in export revenues. Iron exports have already slowed, but should that become an extended decline, it will cause long-term harm to growth prospects.