Brexit’s Impact on Latin American Economies

Understanding Brexit

Brexit, derived from the words "Britain" and "exit," is a term that is used to refer to the United Kingdom's departure from the European Union. The move was first proposed in June 2016, where 51.89% of the voters at a referendum voted in favour of the UK leaving the EU, which it eventually did at the end of January 2020. The departure was reportedly rooted in the supposedly dysfunctional nature of the collective and its apparent failure to address certain economic issues and unemployment. The rise of nationalism in the world is said to have been another factor, prompting a level of mistrust in multinational financial trade and the immigration crisis. Moreover, political factors and conditions also played a role in the UK's departure, ultimately causing instability in the markets and reducing investor confidence. This hugely impacted trade and economic activity with European countries, as a network of procedures and tariffs stemmed from it.

The conversation on Brexit consequently also led to a much-needed analysis of the UK stock market, as the instability could not be ignored. Some reports on the matter suggest that stock prices at the time were heavily influenced by fears of an economic downturn amid the tumultuous conditions after the contentious referendum.

How Brexit affects Latin America

Latin American countries were inevitably impacted by Brexit, in light of the political, commercial and economic chaos that ensued. With England being the fifth most powerful economy in the world, the strained trade relationship between the EU and UK caused instability in international markets and led to a weakening of the GBP and a strengthening of the USD. As such, with Latin America having a strong trade relationship and reliance on the US, the strengthening of the Dollar impacted the cost of trade and also sparked an opportunity for Latin American countries to diversify and consider alternative trade countries. Moreover, a stronger Dollar meant that any debt that Latin American countries had, which was priced according to the USD, also increased.

While some viewed Brexit as the most opportune time for Britain to establish trade channels with Latin America, in March 2021, it was reported that Latin American officials expressed reluctance at the idea. They claimed that British companies often avoid long-term investments within the region, which remains one of the main reason why trade with more welcoming countries and markets, such as the USA and Asia, is preferred.

Latin America economic outlook as it stands

Like many economies across the globe, Latin American countries are still reeling from the conditions of 2020. However, although several challenges still exist, there is a glimmer of hope as global trade activity is gradually resuming, particularly in the USA and China. This is of interest as these are two of the leading exporters and importers of goods, and Latin America conducts many of its trade activities with them, as alluded to above. According to reports, Latin America was the only region that recorded an increase, albeit as insignificant as 1%, in 2020, while other regions recorded a decrease. The economic outlook for Latin America remains volatile but promising.