Direct Trade Impact of Brazil’s Recession

Brazil’s real GDP fell by 3.5 percent in 2015 and a similar decline is projected this year. Which countries suffer the most from Brazil’s recession in terms of impacted trade?

Although Brazil’s share of global output (at market exchange rates) is only 2.5 percent, it is the largest economy in Latin America (36.4 percent of the region’s output). It is also a key trading partner for a few economies in South America. The table reports individual countries’ bilateral exports to Brazil as a share of their total exports. The most affected by the state of Brazil’s economy are its neighbors to the south (Argentina, Bolivia, Paraguay, and Uruguay), three of which are, together with Brazil, full members of the Mercosur trade agreement, and one is an associate member (Bolivia).

Lower import demand from Brazil will have a limited direct impact on the United States. Brazil is the ninth most important trading partner for the United States in terms of share of total US exports. Given the size of the US exposure to Brazil, the recession there is about as important as the economic condition in Hong Kong or the Netherlands. China, which announced multiple investment deals with Brazil last year, may experience complications due to ongoing unrest in Brazil, but it exports only a small share of its goods to Brazil (1.5 percent), limiting the magnitude of the immediate effect on sales of goods.

When can we expect the conditions to improve? Brazil will not rebound this year and according to PIIE projections, its recession is expected to deepen in 2016. Unless the protracted political uncertainty is resolved, Brazil’s economy will continue to shrink in 2017. The immediate impact will be more concentrated for Brazil’s regional trading partners but for trade flows worldwide Brazil’s recession may have less consequence.