Germany eyes new markets for its exports in Latin America

SANTIAGO DE COMPOSTELA, Spain (Reuters) - As China loses its importance as a destination for German exports, the euro zone's biggest economy is looking for new markets for its products and services in Latin America and the Caribbean.

"We are in a fragile situation in the world economy and we see great economic potential especially in the countries of Latin America," German Finance Minister Christian Lindner said on Friday before a meeting of European and Latin American finance ministers in Spain.

"I would welcome that our meeting sends a signal that we can make rapid progress on the free trade agreement between the European Union and Mercosur," Lindner said.

With China's economy losing steam, European countries are keen to conclude a trade agreement with Mercosur, with hopes of boosting their exports into the Latin American trading bloc, diversifying their exports' clients.

"We can't always just talk about wanting to diversify to be less dependent on China," Lindner said. "At some point, this language must be followed by action."

Compared with the first half of 2022, German exports to China fell by more than 8%, according to the German economic institute IW.

Despite hopes of a trade boost after Beijing lifted its tight COVID-19-related restrictions, exports to China made up just 6.2% of total German exports in the first half of the year - the lowest share since 2016 - according to data from the German statistics office.

"It is like a scale, and the risk and the benefits in the scale of trading with China are shifting more and more," Jens Hildebrandt, chief representative of the delegation of German industry and commerce in Beijing, told Reuters.

While Chinese policymakers try to revive growth, Latin America's annual gross domestic product (GDP) has more than quintupled over the past thirty years, reaching $6.25 billion in 2022.

"German companies are currently intensively searching for new suppliers, investment locations and, last but not least, new sales markets. Latin America is high on the agenda," said Volker Treier, chief executive of foreign trade at the German Chamber of Commerce and Industry DIHK.

Negotiators for the European Union and Mercosur on Thursday discussed the next steps towards completing their long-awaited trade deal.

"All sides have a lot of interest in the agreement, and they should be now ready for a compromise," said Uta Knott, Senior Manager for Latin America at the German industry association BDI. "A big opportunity would be missed if they don't reach an agreement," she told Reuters.

She added that while Latin American countries can offer cheap hydrogen and renewable energies to Germany, South America is very interested in German technologies.

"It is often the case that their productivity can still be optimised," Knott said.

Germany's largest trading partners in Latin America are Argentina, Brazil, Chile, Colombia and Mexico, who combined account for almost 80% of its trade volume with the region. However, these countries represent only 2.6% of German exports overall.

"The conclusion of Mercosur would be a very important step," Minister Lindner said.