## Spillovers to Latin America from Growth Slowdowns in China and the United States ## Source details **Canonical URL:** [Spillovers to Latin America from Growth Slowdowns in China and the United States](https://www.imf.org/-/media/files/publications/reo/whd/2019/october/english/spillovers.pdf) ## Other formats - [Markdown version](/-/media/files/publications/reo/whd/2019/october/english/spillovers.pdf.md) - [Structured JSON version](/-/media/files/publications/reo/whd/2019/october/english/spillovers.pdf.json) --- ### Introduction and overall finding - 0.5 percentage points. The se spillovers could be significantly larger if the slowdowns in China and the United States also lead to tighter financial conditions in emerging market economies, including in Latin America. - Economic activity in China and the United States is projected to slow down in the coming years owing to cyclical forces, population aging, and low productivity growth. - Heightened trade and technology tensions could lead to a faster than expected decline in near-term growth in both countries. - China’s economy is expected to continue rebalancing away from industry and investment towards services and consumption. - The impact is already visible: merchandise exports and imports (value and volume) slowed sharply in China and the United States in 2019, reducing bilateral trade and affecting other regions integrated in value chains with China and commodity exporters. ### Trade channel: exposures and recent developments - Merchandise exports in Latin America grew robustly in 2018 but slowed sharply in the first half of 2019. - Slowdown drivers: - Fall in export prices year-on-year in most countries. - Slowdown in export volumes in most countries (exception: Argentina). - Reduced exports to China and the United States played a major role; lower exports to Europe and other Latin American countries also contributed. - Trade exposure specifics: - Mexico: United States accounts for 80 percent of total exports. - Chile: China accounts for 34 percent of total exports. - Peru: China accounts for 28 percent of total exports. - Gross exports as percent of GDP (2018): total goods exports accounted for more than 25 percent of GDP in Chile, Mexico, and Peru. - Trade in value added: - Domestic value-added embedded in gross exports is high at near 90 percent for most Latin American countries, but lower for Mexico—indicating low backward integration into global value chains for most countries. - Mexico is the most exposed to US growth under both domestic demand and exports metrics; Colombia and Costa Rica also have sizable US exposures. - Chile and Peru are exposed to both China and the United States, somewhat more to China. - Argentina, Brazil, and Colombia are less exposed overall; Brazil has non-negligible exposure to China and Colombia to the United States; Argentina has low exposures to either country. ### Commodity price channel: exposures and composition - China and the United States account for one-third of global demand for oil and over half of that for metals; lower growth in those economies could reduce global commodity prices, hurting net commodity exporters in Latin America. - Main commodity exports by country (Table 1, three-year average of 2013–15): - Argentina: Commodity Exports 5.7% of GDP; Net Commodity Exports 3.7% of GDP; Top 3: Soybean meal (16.5%), Soybeans (6.2%), Corn (6.2%) - Bolivia: Commodity Exports 26.4% of GDP; Net Commodity Exports 21.8% of GDP; Top 3: Natural gas (45.8%), Zinc (7.8%), Soybean meal (5.4%) - Brazil: Commodity Exports 5.2% of GDP; Net Commodity Exports 3.0% of GDP; Top 3: Iron ore (11.3%), Soybeans (10.2%), Sugar (4.4%) - Chile: Commodity Exports 18.5% of GDP; Net Commodity Exports 11.7% of GDP; Top 3: Copper (51.0%), Salmon (6.1%), Timber (3.8%) - Colombia: Commodity Exports 10.2% of GDP; Net Commodity Exports 7.0% of GDP; Top 3: Oil (35.7%), Coal (12.2%), Coffee (5.4%) - Ecuador: Commodity Exports 19.4% of GDP; Net Commodity Exports 14.3% of GDP; Top 3: Oil (34.9%), Bananas (11.6%), Shrimp (9.9%) - Mexico: Commodity Exports 4.0% of GDP; Net Commodity Exports –0.1% of GDP; Top 3: Oil (3.4%), Lead (0.4%), Copper (0.3%) - Peru: Commodity Exports 10.5% of GDP; Net Commodity Exports 6.1% of GDP; Top 3: Copper (24.7%), Zinc (4.5%), Fishmeal (3.4%) - Trinidad and Tobago: Commodity Exports 32.4% of GDP; Net Commodity Exports 17.6% of GDP; Top 3: Natural gas (21.2%), Oil (9.8%), Iron ore (4.6%) - Uruguay: Commodity Exports 9.4% of GDP; Net Commodity Exports 5.0% of GDP; Top 3: Beef (17.7%), Soybeans (17.6%), Rice (5.3%) - Venezuela: Commodity Exports 37.7% of GDP; Net Commodity Exports 35.2% of GDP; Top 3: Oil, Iron ore, Hides - Countries most exposed to a broad-based commodity price shock: Venezuela, Bolivia, Trinidad and Tobago, Ecuador, and Chile (based on net and overall commodity exports to GDP). ### Financial flows channel: openness and bilateral positions - De facto capital account openness (sum of foreign assets excluding reserves and foreign liabilities as percent of GDP): ranges from 1 10 percent of GDP in Argentina and Brazil to over 200 percent of GDP in Chile and Uruguay. - De jure capital account openness (Chinn-Ito Financial Openness Index, normalized 0–1): relatively high value between 0.42 and 1 for most Latin American countries, except Argentina and Brazil. - Cross-country direct and portfolio investment positions (2017): - Latin America is more exposed to the United States than to China. - US direct investment in Latin America is much higher than China’s, particularly in Costa Rica and Mexico. - Direct investment from Latin America in the United States is larger than that in China, especially for Chile and Mexico. - US portfolio investment in Latin America is higher than China’s, especially in Chile and Mexico. - Portfolio investment from Latin America in the United States is larger than that in China, especially for Chile, Colombia, and Peru. - Caveat: bilateral exposures could be underestimated if flows are channeled through third countries (financial centers or tax havens), which would not be reflected in direct bilateral investment positions. ### Global financial conditions and amplification risks - Negative shocks in the United States have historically been associated with spikes in the CBOE Volatility Index (VIX). - Negative shocks in large emerging market economies (e.g., mid-2015 China stock market fall and renminbi realignment) also led to VIX spikes. - Spikes in the VIX have been associated with lower capital flows to Latin America; thus growth slowdowns in China or the United States could trigger VIX spikes, lower capital flows, and amplify spillovers to the region. ### Methods and scope - This annex quantifies spillovers for Latin America through three channels: trade, commodity prices, and financial flows. - Data sources and approaches: - Gross exports: IMF Direction of Trade (DOT) database (high frequency, little lag; may overstate exposures for countries in global value chains). - Exports in value added: OECD Trade in Value Added (TiVA) database (better measures of domestic value-added; annual frequency with significant lag). - Commodity exposures: IMF Commodity Terms of Trade database; other sources. - Financial positions: IMF Coordinated Direct Investment Survey (CDIS) and Coordinated Portfolio Investment Survey (CPIS). - Quantification tools mentioned: Global Vector Autoregression (GVAR) framework and the IMF’s Flexible System of Global Models (FSGM). ### Quantifying the size of spillovers — GVAR empirical findings - GVAR estimated over 1981Q2–2018Q2 with 33 country-specific modules, including Argentina, Brazil, Chile, Mexico, and Peru. - Variables included: real GDP, inflation, real exchange rate, short and long-term interest rates, government debt-to-GDP ratio, primary fiscal balance, price of oil, and FSI. - Impact of a one-off fall in China’s real GDP growth by 1 percentage point (one-year impact): - Peru: lowers growth by 0.4 percentage points. - Brazil: lowers growth by 0.3 percentage points. - Chile: lowers growth by 0.3 percentage points. - Mexico: lowers growth by 0.2 percentage points. - Argentina: impact not statistically significant. - Impact of a one-off fall in US real GDP growth by 1 percentage point (one-year impact): - Mexico: lowers growth by 0.5 percentage points (statistically significant). - Brazil, Chile, Peru: effects not statistically significant. - Argentina: large and statistically significant effect. - An increase of one standard deviation in the advanced-economies FSI leads to large and statistically significant declines in growth in Latin America, especially in Argentina, Brazil, and Chile. - Summary from GVAR: - China growth shocks have larger spillovers to Brazil, Chile, and Peru than US growth shocks: a 1 percentage point fall in China’s growth lowers these countries by 0.3 to 0.4 percentage points. - US growth shocks have larger effects on Mexico than China: a 1 percentage point fall in US growth lowers Mexico by 0.5 percentage points vs. 0.2 percentage points from China. - Spillovers could be much larger if growth shocks also trigger bouts of global financial market volatility. ### Quantifying the size of spillovers — FSGM model scenarios and findings - FSGM structure: 24 region-specific modules; private consumption and investment micro-founded; trade, labor supply, inflation in reduced form; monetary policy follows a standard reaction function; fiscal policy anchored by a debt rule. - Two scenarios examined: 1. Private demand shock lowering growth by 1 percentage point in China or the United States in one year; financial linkages limited to uncovered interest parity (UIP). 2. Same 1 percentage point growth shock plus a rise of 100 basis points in sovereign risk premium in emerging market economies (including Latin America). - The 100 basis points increase is about one standard deviation of the annual change in spreads in Latin America since 2007, and about one third of the increase during the global financial crisis. - Scenario 1 (demand shock only; one-year impact): - China shock (1 percentage point fall) lowers growth by: - Chile: 0.2 percentage points. - Peru: 0.2 percentage points. - Uruguay: 0.1 percentage points. - US shock (1 percentage point fall) lowers growth by: - Mexico: 0.5 percentage points. - Costa Rica: 0.5 percentage points. - Colombia: 0.2 percentage points. - Spillovers to Argentina and Brazil are small. - Scenario 2 (demand shock plus 100 basis points higher sovereign spreads; one-year impact): - China shock (1 percentage point fall) plus 100 basis points rise in spreads lowers growth by: - Chile, Peru, Uruguay: more than 0.4 percentage points (simulated range cited: 0.4–0.5 percentage points). - US shock (1 percentage point fall) plus 100 basis points rise in spreads lowers growth by: - Colombia, Costa Rica, Mexico: more than 0.6 percentage points (simulated range cited: 0.5–0.7 percentage points). - Argentina and Brazil: impacts smaller but sizable, driven fully by the rise in sovereign spreads (example: growth falling by 0.3 percentage points, driven by increase in sovereign spreads). - Joint shock illustration: - A joint shock that lowers growth temporarily in both China and the United States by 1 percentage point, combined with a rise of 100 basis points in sovereign spreads in emerging market economies, would lower growth in the largest economies in Latin America by between 0.5 and 1 percentage points. ### Conclusions and policy recommendations - Projected forces: growth in China and the United States is expected to slow in coming years because of cyclical forces, population aging, and low productivity growth; trade and technology tensions could further reduce near-term growth; China expected to continue rebalancing from investment to consumption. - Exposure patterns and key quantified spillovers: - Chile, Peru, Uruguay: large exposures to both China and the United States, with slightly larger exposure to China. A 1 percentage point fall in China’s growth lowers growth by 0.1–0.3 percentage points; similar US shock reduces growth by 0–0.2 percentage points. - Colombia, Costa Rica, Mexico: large exposures to the United States and significantly smaller to China. A 1 percentage point fall in US growth reduces growth by 0.5 percentage points in Costa Rica and Mexico, and 0.2 percentage points in Colombia; similar China shock lowers growth by 0.1–0.2 percentage points. - Argentina and Brazil: low exposures; spillovers negligible from either shock absent financial amplification. - Amplification via sovereign spreads: - A 1 percentage point fall in China’s growth combined with a 100 basis points rise in sovereign spreads reduces growth in Chile, Peru, Uruguay by 0.4–0.5 percentage points. - A 1 percentage point fall in US growth combined with the same 100 basis points rise in sovereign spreads lowers growth in Colombia, Costa Rica, Mexico by 0.5–0.7 percentage points. - Argentina and Brazil could see growth fall by 0.3 percentage points, driven fully by the increase in sovereign spreads. - Policy recommendations for Latin American countries: - Continue consolidating fiscal positions to reduce public debt and create fiscal space. - Protect public investment and well-targeted social expenditure during fiscal adjustment to mitigate adverse effects on growth. - Central banks should strive to keep inflation close to target and maintain well-anchored inflation expectations to preserve monetary policy credibility and room to react to shocks. - Maintain flexible exchange rates to act as shock absorbers. - Enhance resilience by diversifying exports and trading partners. - Embrace opportunities from China’s rebalancing, including increased demand for consumption goods and services. *Source: Regional Economic Outlook: Western Hemisphere (October 2019), IMF staff calculations and analyses in "Spillovers to Latin America from Growth Slowdowns in China and the United States."* ### 0.5 percentage points. The se spillovers could be significantly larger if the slowdowns in China and the United States ### spillovers - 0.5 percentage points. The se spillovers could be significantly larger if the slowdowns in China and the United States ### Introduction and overall finding - 0.5 percentage points. The se spillovers could be significantly larger if the slowdowns in China and the United States also lead to tighter financial conditions in emerging market economies, including in Latin America. - Economic activity in China and the United States is projected to slow down in the coming years owing to cyclical forces, population aging, and low productivity growth. - Heightened trade and technology tensions could lead to a faster than expected decline in near-term growth in both countries. - China’s economy is expected to continue rebalancing away from industry and investment towards services and consumption. - The impact is already visible: merchandise exports and imports (value and volume) slowed sharply in China and the United States in 2019, reducing bilateral trade and affecting other regions integrated in value chains with China and commodity exporters. ### Trade channel: exposures and recent developments - Merchandise exports in Latin America grew robustly in 2018 but slowed sharply in the first half of 2019. - Slowdown drivers: - Fall in export prices year-on-year in most countries. - Slowdown in export volumes in most countries (exception: Argentina). - Reduced exports to China and the United States played a major role; lower exports to Europe and other Latin American countries also contributed. - Trade exposure specifics: - Mexico: United States accounts for 80 percent of total exports. - Chile: China accounts for 34 percent of total exports. - Peru: China accounts for 28 percent of total exports. - Gross exports as percent of GDP (2018): total goods exports accounted for more than 25 percent of GDP in Chile, Mexico, and Peru. - Trade in value added: - Domestic value-added embedded in gross exports is high at near 90 percent for most Latin American countries, but lower for Mexico—indicating low backward integration into global value chains for most countries. - Mexico is the most exposed to US growth under both domestic demand and exports metrics; Colombia and Costa Rica also have sizable US exposures. - Chile and Peru are exposed to both China and the United States, somewhat more to China. - Argentina, Brazil, and Colombia are less exposed overall; Brazil has non-negligible exposure to China and Colombia to the United States; Argentina has low exposures to either country. ### Commodity price channel: exposures and composition - China and the United States account for one-third of global demand for oil and over half of that for metals; lower growth in those economies could reduce global commodity prices, hurting net commodity exporters in Latin America. - Main commodity exports by country (Table 1, three-year average of 2013–15): - Argentina: Commodity Exports 5.7% of GDP; Net Commodity Exports 3.7% of GDP; Top 3: Soybean meal (16.5%), Soybeans (6.2%), Corn (6.2%) - Bolivia: Commodity Exports 26.4% of GDP; Net Commodity Exports 21.8% of GDP; Top 3: Natural gas (45.8%), Zinc (7.8%), Soybean meal (5.4%) - Brazil: Commodity Exports 5.2% of GDP; Net Commodity Exports 3.0% of GDP; Top 3: Iron ore (11.3%), Soybeans (10.2%), Sugar (4.4%) - Chile: Commodity Exports 18.5% of GDP; Net Commodity Exports 11.7% of GDP; Top 3: Copper (51.0%), Salmon (6.1%), Timber (3.8%) - Colombia: Commodity Exports 10.2% of GDP; Net Commodity Exports 7.0% of GDP; Top 3: Oil (35.7%), Coal (12.2%), Coffee (5.4%) - Ecuador: Commodity Exports 19.4% of GDP; Net Commodity Exports 14.3% of GDP; Top 3: Oil (34.9%), Bananas (11.6%), Shrimp (9.9%) - Mexico: Commodity Exports 4.0% of GDP; Net Commodity Exports –0.1% of GDP; Top 3: Oil (3.4%), Lead (0.4%), Copper (0.3%) - Peru: Commodity Exports 10.5% of GDP; Net Commodity Exports 6.1% of GDP; Top 3: Copper (24.7%), Zinc (4.5%), Fishmeal (3.4%) - Trinidad and Tobago: Commodity Exports 32.4% of GDP; Net Commodity Exports 17.6% of GDP; Top 3: Natural gas (21.2%), Oil (9.8%), Iron ore (4.6%) - Uruguay: Commodity Exports 9.4% of GDP; Net Commodity Exports 5.0% of GDP; Top 3: Beef (17.7%), Soybeans (17.6%), Rice (5.3%) - Venezuela: Commodity Exports 37.7% of GDP; Net Commodity Exports 35.2% of GDP; Top 3: Oil, Iron ore, Hides - Countries most exposed to a broad-based commodity price shock: Venezuela, Bolivia, Trinidad and Tobago, Ecuador, and Chile (based on net and overall commodity exports to GDP). ### Financial flows channel: openness and bilateral positions - De facto capital account openness (sum of foreign assets excluding reserves and foreign liabilities as percent of GDP): ranges from 1 10 percent of GDP in Argentina and Brazil to over 200 percent of GDP in Chile and Uruguay. - De jure capital account openness (Chinn-Ito Financial Openness Index, normalized 0–1): relatively high value between 0.42 and 1 for most Latin American countries, except Argentina and Brazil. - Cross-country direct and portfolio investment positions (2017): - Latin America is more exposed to the United States than to China. - US direct investment in Latin America is much higher than China’s, particularly in Costa Rica and Mexico. - Direct investment from Latin America in the United States is larger than that in China, especially for Chile and Mexico. - US portfolio investment in Latin America is higher than China’s, especially in Chile and Mexico. - Portfolio investment from Latin America in the United States is larger than that in China, especially for Chile, Colombia, and Peru. - Caveat: bilateral exposures could be underestimated if flows are channeled through third countries (financial centers or tax havens), which would not be reflected in direct bilateral investment positions. ### Global financial conditions and amplification risks - Negative shocks in the United States have historically been associated with spikes in the CBOE Volatility Index (VIX). - Negative shocks in large emerging market economies (e.g., mid-2015 China stock market fall and renminbi realignment) also led to VIX spikes. - Spikes in the VIX have been associated with lower capital flows to Latin America; thus growth slowdowns in China or the United States could trigger VIX spikes, lower capital flows, and amplify spillovers to the region. ### Methods and scope - This annex quantifies spillovers for Latin America through three channels: trade, commodity prices, and financial flows. - Data sources and approaches: - Gross exports: IMF Direction of Trade (DOT) database (high frequency, little lag; may overstate exposures for countries in global value chains). - Exports in value added: OECD Trade in Value Added (TiVA) database (better measures of domestic value-added; annual frequency with significant lag). - Commodity exposures: IMF Commodity Terms of Trade database; other sources. - Financial positions: IMF Coordinated Direct Investment Survey (CDIS) and Coordinated Portfolio Investment Survey (CPIS). - Quantification tools mentioned: Global Vector Autoregression (GVAR) framework and the IMF’s Flexible System of Global Models (FSGM). *International Monetary Fund | October 2019* ### 1. Latin America: Net Capital Flows ### 1. Latin America: Net Capital Flows ### Summary - Latin America is susceptible to changes in global financial conditions because of generally open capital accounts and high sensitivity of capital flows to global financial market volatility. - Cross-country direct and portfolio investment positions indicate Latin America is in general more exposed to the United States than to China. - EPFR = Emerging Portfolio Fund Research; VIX = Chicago Board Options Exchange Volatility Index. ### Quantifying The Size of Spillovers - Two complementary approaches are used to quantify spillovers from growth shocks in China and the United States: - Empirical: GVAR (global vector autoregression) framework. - Model-based: FSGM (Flexible System of Global Models). - GVAR advantage: data-driven, accounts for third-market effects, feedback and indirect exposures; limitation: may not identify underlying source of growth shocks or study multiple simultaneous shocks easily. - FSGM advantage: multi-region general equilibrium structure, suited to study multiple shocks (including simultaneous slowing and rebalancing in China); limitation: structural rigidity and parameter calibration judgment. - The FSI (financial market stress index) captures shifts in asset prices, surges in risk/uncertainty (stock and FX volatility), liquidity tightening (difference between three-month Treasury bill and three-month LIBOR based on US dollars), and banking system health (beta of banking sector stocks and the yield curve). - A one standard deviation increase in the FSI for advanced economies corresponds to around two-thirds of the rise during the European sovereign debt crisis and about one-tenth of the rise during the global financial crisis. ### Empirical Approach (GVAR) Findings - GVAR estimated over 1981Q2–2018Q2 with 33 country-specific modules, including Argentina, Brazil, Chile, Mexico, and Peru. - Variables included: real GDP, inflation, real exchange rate, short and long-term interest rates, government debt-to-GDP ratio, primary fiscal balance, price of oil, and FSI. - Impact of a one-off fall in China’s real GDP growth by 1 percentage point (one-year impact): - Peru: lowers growth by 0.4 percentage points. - Brazil: lowers growth by 0.3 percentage points. - Chile: lowers growth by 0.3 percentage points. - Mexico: lowers growth by 0.2 percentage points. - Argentina: impact not statistically significant. - Impact of a one-off fall in US real GDP growth by 1 percentage point (one-year impact): - Mexico: lowers growth by 0.5 percentage points (statistically significant). - Brazil, Chile, Peru: effects not statistically significant. - Argentina: large and statistically significant effect (possible channel: tighter global financial conditions historically affecting Argentina disproportionately). - Advanced economies: larger impacts for those more open to trade (Canada, Germany, Japan) than the United States. - An increase of one standard deviation in the advanced-economies FSI leads to large and statistically significant declines in growth in Latin America, especially in Argentina, Brazil, and Chile; advanced economies also decline, especially Germany and Japan. - Summary from GVAR: - China growth shocks have larger spillovers to Brazil, Chile, and Peru than US growth shocks: a 1 percentage point fall in China’s growth lowers these countries by 0.3 to 0.4 percentage points. - US growth shocks have larger effects on Mexico than China: a 1 percentage point fall in US growth lowers Mexico by 0.5 percentage points vs. 0.2 percentage points from China. - Spillovers could be much larger if growth shocks also trigger bouts of global financial market volatility. ### Model-Based Approach (FSGM) Scenarios and Findings - FSGM structure: 24 region-specific modules; private consumption and investment micro-founded; trade, labor supply, inflation in reduced form; monetary policy follows a standard reaction function; fiscal policy anchored by a debt rule. - Two scenarios examined: 1. Private demand shock lowering growth by 1 percentage point in China or the United States in one year; financial linkages limited to uncovered interest parity (UIP). 2. Same 1 percentage point growth shock plus a rise of 100 basis points in sovereign risk premium in emerging market economies (including Latin America). - The 100 basis points increase is about one standard deviation of the annual change in spreads in Latin America since 2007, and about one third of the increase during the global financial crisis. - Scenario 1 (demand shock only; one-year impact): - China shock (1 percentage point fall) lowers growth by: - Chile: 0.2 percentage points. - Peru: 0.2 percentage points. - Uruguay: 0.1 percentage points. - US shock (1 percentage point fall) lowers growth by: - Mexico: 0.5 percentage points. - Costa Rica: 0.5 percentage points. - Colombia: 0.2 percentage points. - Spillovers to Argentina and Brazil are small. - Spillovers are generally smaller than in the GVAR, possibly due to assumed monetary easing, automatic stabilizers, and limited financial linkages beyond UIP. - Scenario 2 (demand shock plus 100 basis points higher sovereign spreads; one-year impact): - China shock (1 percentage point fall) plus 100 basis points rise in spreads lowers growth by: - Chile, Peru, Uruguay: more than 0.4 percentage points (simulated range cited: 0.4–0.5 percentage points in summary). - US shock (1 percentage point fall) plus 100 basis points rise in spreads lowers growth by: - Colombia, Costa Rica, Mexico: more than 0.6 percentage points (simulated range cited: 0.5–0.7 percentage points in summary). - Argentina and Brazil: impacts smaller but sizable, driven fully by the rise in sovereign spreads (example in summary: growth falling by 0.3 percentage points, driven by increase in sovereign spreads). - Spillovers in this scenario exceed GVAR estimates, implying the assumed rise in spreads may be high relative to historical averages. - Joint shock illustration: - A joint shock that lowers growth temporarily in both China and the United States by 1 percentage point, combined with a rise of 100 basis points in sovereign spreads in emerging market economies, would lower growth in the largest economies in Latin America by between 0.5 and 1 percentage points. ### Conclusions and Policy Recommendations - Projected forces: growth in China and the United States is expected to slow in coming years because of cyclical forces, population aging, and low productivity growth; trade and technology tensions could further reduce near-term growth; China expected to continue rebalancing from investment to consumption. - Exposure patterns and key quantified spillovers: - Chile, Peru, Uruguay: large exposures to both China and the United States, with slightly larger exposure to China. A 1 percentage point fall in China’s growth lowers growth by 0.1–0.3 percentage points; similar US shock reduces growth by 0–0.2 percentage points. - Colombia, Costa Rica, Mexico: large exposures to the United States and significantly smaller to China. A 1 percentage point fall in US growth reduces growth by 0.5 percentage points in Costa Rica and Mexico, and 0.2 percentage points in Colombia; similar China shock lowers growth by 0.1–0.2 percentage points. - Argentina and Brazil: low exposures; spillovers negligible from either shock absent financial amplification. - Amplification via sovereign spreads: - A 1 percentage point fall in China’s growth combined with a 100 basis points rise in sovereign spreads reduces growth in Chile, Peru, Uruguay by 0.4–0.5 percentage points. - A 1 percentage point fall in US growth combined with the same 100 basis points rise in sovereign spreads lowers growth in Colombia, Costa Rica, Mexico by 0.5–0.7 percentage points. - Argentina and Brazil could see growth fall by 0.3 percentage points, driven fully by the increase in sovereign spreads. - Policy recommendations for Latin American countries: - Continue consolidating fiscal positions to reduce public debt and create fiscal space. - Protect public investment and well-targeted social expenditure during fiscal adjustment to mitigate adverse effects on growth. - Central banks should strive to keep inflation close to target and maintain well-anchored inflation expectations to preserve monetary policy credibility and room to react to shocks. - Maintain flexible exchange rates to act as shock absorbers. - Enhance resilience by diversifying exports and trading partners. - Embrace opportunities from China’s rebalancing, including increased demand for consumption goods and services. *Source: Regional Economic Outlook: Western Hemisphere (October 2019), IMF staff calculations and analyses in "Spillovers to Latin America from Growth Slowdowns in China and the United States."* --- _Source: https://www.imf.org/-/media/files/publications/reo/whd/2019/october/english/spillovers.pdf_