Regional Private Consumption Update: Turning Less Optimistic


BMI View: Since our last regional private consumption updated, we have lowered our 2013 growth expectations for the Latin American consumer, following a recent downward revision to our outlook on Brazilian households . Among the major economies in the region, we now only forecast an acceleration in household spending growth in Colombia this year. That said, we maintain a favourable long-term outlook for Mexican and Peruvian consumer s , and believe Argentina and Venezuela will remain regional underperformers.

Recent ly released 2012 GDP data reveal s that we underestimated real private consumption growth las t year in Argentina, Brazil, Colombia and Venezuela , while we were overly optimistic in Chile, Peru, and Mexico. As a result, we have adjusted our 2013 regional average real private consumption growth forecast from 3.5% to 3.3%, compared to 4.9% in 2012. A main factor behind the loweri ng of our consumer expectations is a recent downward revision to our Brazilian real private consumption forecast amid rising signs of a weakening in household spending. Among the major Latin American economies, w e now only forecast an acceleration in real private consumption growth in 2013 in Colombia, but maintain a favourable long-term outlook for Peru and Mexico.

Highlights since our previous regional private consumption update:

  • We have revised down our 2013 real private consumption growth forecast for Brazil from 3.2% to 2.2%, implying a deceleration from 3.1% growth seen in 2012.

  • Loose monetary conditions in Colombia and Mexico will support strong consumpti on levels, particularly in H213.

  • Our expectations for slower growth in China in H213 underpin our view for slower household spending in the region's main metal exporters Peru and Chile . However, in the case of Peru, as is the case for Mexico and Colombia , we maintain a favourable long-term outlook on the consumer.

  • We maintain our view that Venezuelan and Argentine consumers will remain regional underperformers over the long term.

Some Surprises But Broadly On Track
Latin America - Real Private Consumption Growth (BMI Estimates Vs Actual), %

Signs Of A Weaker Consumer Across The Board

The latest 2013 retail sales data available suggest s that household spending growth across all major economies in the region has slowed as compared to the same period last yea r , with the exception of Venezuela , where above 20.0% inflat ion has eroded much of the real gains . This reaffirms our expectations for slower private consumption growth in Latin America this year, excluding Colombia were we anticipate an acceleration in household spending. While we expect household spendi ng to remain broadly subdued through Q213 in Colombia, we believe private consumption will improve significantly in the second half of the year as the central bank's ongoing aggressive monetary easing cycle will bolster consumer credit growth. Similarly, in Mexico, following its central bank's 50 basis point policy rate cut in March, its first cut since 2009 , we anticipate support robust private consumption growth this year, albeit at a slightly slower pace than last year.

Latin America - Average Retail Sales Growth For Selected Economies
YTD Average Latest Period Average For Same Period Last Year
Note: Peru does not publish retail sales data; Source: Respective National Statistics Agencies.
Argentina 24.2% Jan 27.3%
Brazil 2.9% Jan-Feb 9.2%
Chile 9.1% Jan-Mar 9.5%
Colombia 1.0% Jan-Feb 7.0%
Mexico -0.4% Jan-Feb 6.0%
Venezuela 30.2% Jan 28.4%

Looking at financial markets, it is evident that the Latin American consumer remains some way off a full rebound to pre-2008 crisis levels. Indeed, the MSCI Latin America Consumer Discretionary index to MSCI Consumer Staples ind ex ratio continues to favour the latter, a sign that a broad consumer-driven recovery in Lat in America has yet to take off after six years of consumer staples stocks outperforming in the region . We expect this trend to rem ain in place throughout 2013 due to several factors. First, the region's main industrial metal exporters, particularly Chile and Peru, will see slower household spending growth, underpinned by our expectations for a slowdown in Chi nese growth in H213. Second , Venezuela and Argentina, which we anticipate will be regional underperformers, will also see a weakened consumer, as rising inflation and weaker currencies will erode purchasing power. Third, as discussed in the next paragraph, we expect a subdued Brazilian consumer throughout the year.

No Trend Reversal Yet
Latin America - MSCI Consumer Discretionary/MSCI Consumer Staples Ratio

Lowering Our Expectations On The Brazilian Consumer

In Brazil's case, where we initially expected an acceleration in private consumption growth this year, we have recently turned less optimistic for several reasons, and now forecast a modest deceleration in household spending compare to last year . First, household debt levels and non-performing loans have remained near record highs, which we believe will constrain consumer credit growth. Second, we expect 50 ba sis points worth of additional S elic rate hikes to bring the benchmark interest rate to 8.00% by end-2013, which will further weigh on consumer credit growth. Third, high inflation, which we forecast will average 5.8% in 2013, up from 5.4% in 2012, will weigh on household purchasing powe r . Both retail sales and the consumer confidence index have contracted on year-on-year basis in recent months, confirming our expectations of a weaker Brazilian consumer this year.

Consumer Taking A Step Back
Brazil - Retail Sales And FGV Consumer Confidence Index

In It For The Long Term? Think Peru, Mexico, and Colombia

Despite our less optimistic outlook for regional household spending in 2013, we maintain our view that Peru, Colombia, and Mexico offer attractive long-term consumer stories. In the case of Peru, a largely untapped consumer market, rapidly improving macroeconomic conditions, and an increasingly market-friendly environment, opens up plenty of investment opportunities. Colombia's consumer market also remains relatively untap ped, and rising wages and declining une mployment will also likely see robust levels of household spending over a multi-year period. While Mexico's consumer market is relatively more saturated, we believe that the robust macroeconomic performance the country has seen in recent years will gradually feed through to higher wages and support robust private consumption growth over the long term.

Selected Latin American Countries - Real Private Consumption, % chg
2011 2012 Latest Period 2013f 2014f
Note: e/f = BMI estimate/forecast; Source: BMI, Respective Central Banks
Argentina 10.7 4.4 4.5 Q412 0.5 2.0
Brazil 4.1 3.1 3.4 Q412 2.2 2.6
Chile 8.9 6.1 7.3 Q412 4.6 5.0
Colombia 5.9 4.3 4.0 Q412 4.6 4.8
Mexico 4.4 3.3 3.5 Q412 3.2 3.7
Peru 6.4 5.8 5.8 Q412 5.8 5.1
Venezuela 4.0 7.0 7.1 Q412 2.0 2.2
This article is tagged to:
Sector: Country Risk
Geography: Latin America, Latin America

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