A slow down in the growth of the middle classes in Latin America, following a steady rise during the past decade, is likely to have a broad economic impact, affecting a number of industries – including automotive – according to a report by Moody’s Investors Service.
Gersan Zurita, a Moody’s senior vice president and co-author of the report (Latin America’s Middle Class Growth Slows, Tempering Prospects for Retailers, Banks and Homebuilders), said the worst affected companies will be retailers, auto manufacturers, homebuilders, airlines, and sellers of high-ticket, credit-dependent and non-essential items.
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“Economic growth throughout Latin America is slowing down, with growth in the first half of 2014 lower than we expected, negatively affecting both consumption and investment,” he added.
“This follows a decade of strong economic growth, rising wages and increased consumer spending, which have lifted more Latin Americans into the middle class than ever before.”
Moody’s is forecasting that growth in Argentina, Brazil, Chile and Peru will fall below the average growth rate during the 2004-13 period. Mexico is the only country where growth will exceed its historical average, but that is small consolation given its tepid growth during the past decade.
The report said that Argentina is the most at risk. In the past year, uncontrolled inflation, high interest rates and recession have forced consumers to cut back drastically. As a result, bank lending is decreasing. Indeed, loan originations have already declined 20%-30%. The government’s sovereign default in July will further limit the funding options for businesses and lead to further devaluation of the peso.
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By GlobalDataHowever, long-term prospects for the middle class in Mexico remain encouraging with recent economic reforms likely to improve competitiveness, leading to faster growth that will benefit middle class consumers over the long term.
