1138 Export Finance June 2020 WRD Page Banner_1600x420_D1.jpg

Latin America — Surging COVID-19 cases creates risks and opportunities for Australian businesses

Latin America has emerged as the new epicentre of the COVID-19 pandemic. The daily number of new cases is rising sharply, even as the outbreak weakens in Asia, Europe and the US. The seven most affected Latin American countries accounted for 20% of all cases in the world on June 14, driven by Brazil (Chart).

The economic fallout from the public health crisis is mounting. The IMF forecasts the Latin America (and Caribbean) region to contract 5.2% in 2020. Downside risks are significant. Rising infections could do larger economic damage, add to fiscal costs and fuel civil unrest, as has occurred in Chile. Policymakers face significant challenges to prevent further contagion, given Latin America’s large populations live in close communities with a high incidence of poverty and likely insufficient health facilities.

The looming recession will weigh on demand for Australia’s coal, aluminium, aircraft and parts, ores and concentrates, fertilisers, medical equipment and meat exports in the near term. But the overall hit to Australia’s exports should be small, given the region represented a little more than 1% of total exports in 2018-19.

More immediately, COVID-related supply issues in Brazil – the world’s second largest iron ore producer after Australia – and recovering demand from China are boosting iron ore prices and Australia’s resources exports. The price of iron ore is the only non-precious commodity to rise on a year-to-date basis, increasing 10% to about US$102 per tonne in mid-June. This trend means Australia is on track to generate A$100 billion in iron ore export receipts for the 12 months to June 2020 – a record for any commodity.

Figure