CARIBBEAN- Despite the growth in exports from LAC, risks continue to increase.

WASHINGTON, CMC – The Inter-American Development Bank (IDB) says the value of goods exports from Latin America and the Caribbean (LAC) rose by 3.2 percent year-on-year in the first half of 2024, rebounding after a 1.6 percent decline last year.

In its latest report, the IDB said this improvement was due to increased export volumes and the stabilization of prices relative to 2023.

However, according to the report “Bucking the Trend: The Potential of Knowledge-based Services,” the most recent indicators do not yet confirm a sustained recovery in the region’s exports.

The publication, which is the latest edition of the annual Trade and Integration Monitor, reveals that service exports slowed slightly in the first quarter of 2024, growing at 9.5 percent compared to the average of 12.2 percent last year. Nevertheless, this growth remains well above the global average of 7.1 percent.

“After the rebound that followed the pandemic, goods exports from Latin America and the Caribbean have returned to a low-growth trajectory amid more pronounced global fragmentation and highly volatile prices.

“By contrast, exports of services, especially knowledge-based services, have proven resilient and dynamic,” said Paolo Giordano, Principal Economist at the IDB’s Integration and Trade Sector, who coordinated the report.

Export prices in Latin America and the Caribbean fell by 0.5 percent in the first half of 2024, building on the 2.3 percent drop of 2023. Export volumes increased, growing at 3.3 percent, up from one percent the previous year. Import prices fell even more sharply (-3.1 percent) than export prices, improving the region’s terms of trade.

The decline in intraregional sales (-4.5 percent) partially offset the growth in exports to the rest of the world (4.1 percent), and the share of intraregional trade in total trade fell to 13.7 percent.

The report concludes that the external environment entails significant uncertainty and downside risks, mainly due to geopolitical tensions, industrial policies, rising protectionism, and the impact of climate change.

Macroeconomic conditions remain challenging, which may constrain external demand and heighten the volatility of commodity prices.

The report includes an in-depth analysis of the long-term potential of knowledge-based services, with business and computer services standing out for the region.

Over the last decade, exports of knowledge-based services have grown at an annual average rate of 4.7 percent in Latin America and the Caribbean, outpacing exports of goods and overall services.

However, growth has lagged behind the rest of the world (seven percent), and these services are concentrated in less sophisticated activities that are vulnerable to disruption by artificial intelligence.

The IDB said to unlock the potential of this fast-growing segment of global trade, Latin America and the Caribbean must address the internal challenges underlying its productivity gap.

It said these include human capital, digital infrastructure, the business climate, and access to finance. The region must also tackle external barriers that restrict access to international markets and undermine competitiveness.