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Moody's: Chile, Peru most exposed to global trade woes among LatAm economies

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Moody's: Chile, Peru most exposed to global trade woes among LatAm economies

Several Latin American economies are vulnerable to disruptions in global trade and could be impacted by rising trade tensions between the U.S. and China, Moody's said in a report.

Among the countries in the region with China as their top trading partner, Chile and Peru are the most exposed due to their high dependence on commodity exports, Moody's said. China is the destination of 34% of Chile's exports and 25% of Peru's, hence the possible impact on government revenues and economic growth if exports stall, the rating agency noted.

Although China also accounts for a significant portion of Brazil's and Uruguay's exports, these economies are among the most closed in the region, with means that exports are not a leading driver of economic growth.

Meanwhile, Moody's points to Bolivia, Mexico and Paraguay as the most vulnerable economies in the region to a global trade slowdown. In particular, Bolivia's credit profile could be significantly impacted due to its relatively wide current account deficits and a large decline in foreign exchange reserves.

Mexico, which has been facing considerable pressures in its near-term growth, could suffer further economic setback in the event of a trade shock, Moody's said. Such a scenario would decrease GDP growth to just 1.3% in 2020, compared with 1.5% in the rating agency's baseline forecast.

On the other hand, Paraguay could weather a negative impact on its credit profile given its strong growth performance and limited external vulnerability, Moody's said.

Overall, trade openness in Latin America averaged 46% in weighted terms from 2014 to 2018, as opposed to 56% in Asia Pacific, 75% in Central and Eastern Europe, 49% in Sub-Saharan Africa and 81% in the Middle East and North Africa, the rating agency noted.

Among the region's countries, those in Central America are the most open while Brazil and Argentina are the most closed.

Moody's measures trade openness as the share of total exports and imports in the GDP of a country.