Is Latin America the next Southeast Asia?

The scale of transformation that the global economy has been going through in the past several years called increasingly into question the standard notions on the prospects of country economic performance. India’s high growth rates amid China’s growth weakness in recent periods fed expectations of “India becoming the next China” in the emerging market space. Across the various regions of the world economy one of the undisputed leaders in the past several decades in terms growth rates has been ASEAN and Southeast Asia. But with geopolitical risks mounting in the region, as well as friendshoring becoming a key policy focus for the US, there may be scope for a “Latin America becoming the next Southeast Asia” paradigm to play out.

To be sure, Latin America is unlikely to displace Southeast Asia from its “growth podium” in the very near term. Nor is it likely that the Latin American development model will start to closely resemble that of Southeast Asia. But there may be a number of trends that could support Latin America’s growth performance and narrow its growth gap with “Asian tigers”:  

  • Geopolitics: with political confrontation mounting across Eurasia – not only in Europe but also increasingly in East Asia on the back of the stand-off between the US and China – Latin America will be increasingly seen as a relative “safe haven” in terms of the intensity of geopolitical risks
  • Nearshoring by the US: as geopolitical risks escalate, there is growing discussion in the US regarding the benefits of nearshoring, most notably to regions such as Latin America[1]. The relative openness of US markets to the region’s economies in terms of market access according to US commentators will favour the Latam-shoring trend[2]
  • Regional integration: Brazil’s Lula has singled out regional integration within Mercosur and UNASUR as key policy priorities; Mercosur has recently expanded to include Bolivia, and with the prospects of an EU-MERSOUR FTA deal becoming more uncertain after the EU parliamentary elections, there may be greater emphasis placed on building alliances with partners from the Global South (China, India) as well as with blocs such as EFTA[3]
  • Lower inequality: elections in Mexico in June 2024 and the coming to power of Lula in 2022-2023 demonstrated the importance of policies oriented towards supporting the lower strata of the population; lowering inequality is likely to be in the forefront of the economic policy agenda in the two largest economies of the region in the coming years  
  • Scope for higher exports and “sustainable value-chains”: the region is one of the leaders in terms of the share of energy and electricity derived from renewable sources, raising the potential for the region to become a hub for sustainable value chains. This may in turn improve the region’s prospects for a virtuous circle between greater investment flows and export-led growth.  

But for these trends to lead to a Latam success story there are a number of preconditions that the regional economies need to address. In particular, Latin America needs greater continuity in economic policies pursued, particularly in the largest economies such as Brazil and Mexico that account for more than 60% of the region’s total GDP. And while in Mexico the popularity of the incumbent MORENA party has been validated by the recent presidential elections, in Brazil there are signs most recently of slippages in Lula’s popularity ratings[4]. Argentina, another large regional player, presents a case of policy discontinuities and large-scale experiments entertained amid extreme macroeconomic imbalances.

A further prerequisite for Latam success is dealing with governance problems, most notably with respect to elevated crime rates. While the region’s share in global population is close to 8%, it accounts for nearly half of the world’s intentional homicide victims, with the average homicide rate in the region being close to 10 times higher than the average for other emerging markets. According to a recent IMF study, “bringing the crime level in Latin America down to the world average would increase the region’s annual economic growth by 0.5 percentage points, about a third of Latin America’s growth between 2017-19”[5].

If some of these key impediments to long-term growth are addressed, then it may well be possible that after the rise of Europe in the post-war period on the back of EU economic integration and the subsequent emergence of Southeast Asia as the key growth engine of the world economy (something that was also facilitated by a successful regional integration effort via ASEAN), it may be Latin America’s turn to shine on the international stage. And perhaps at least some of the traits of the Asian model could be taken on board by Latam, such as greater openness to trade, a greater share of intra-regional trade, more scope for export-led growth, rising role of regional integration and a greater incorporation of companies into regional and global value chains.  

Yaroslav Lissovolik, Founder, BRICS+ Analytics

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