issue: January 2008 APPLIANCE Magazine
Latin America Forecast
Continuing Growth in Latin America
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by Jill Russell, Contributing Editor
After a period of robust growth, the Latin American appliance market will slow down to show steady performance increases in 2008.
The Latin American region has been experiencing somewhat of a boom. With the past three years showing high real gross domestic product (GDP) growth, the region is forecast to finish out another strong year in 2007 with a 5% increase. A steady and stable level of 4.3% growth is expected for 2008 as of press time, according to the International Monetary Fund (IMF). The moderation is attributed to a slight slowdown in Mexico, a result of an expected economic decline in the United States.
Despite the slight decline, Mexico’s overall growth should be notable in 2008. In fact, Mexico is evidence that the region’s growth can be significantly attributed to its manufacturing and trade success. According to the Organization for Economic Cooperation and Development (OECD), Mexico—the largest and fastest-growing market in Latin America—experienced growth for the past decade, with only a slight recession in the early 2000s. From 1995 to 2005, total growth was nearly 9% per year in volume, with total goods and services reaching 28% of GDP. The significant increase, attributed to the North American Free Trade Agreement (NAFTA) with Canada and the United States, also helped Mexico’s manufactured-goods exports increase an average 11% per year (in dollar terms).
Mexico isn’t the only Latin American nation expected to show a strong 2007. Brazil should end up with a positive year as well, according to market research firm Euromonitor. “Brazil is looking to replicate Mexico’s success,” says Jon Dold, research analyst for Euromonitor. “The housing market in Mexico is pushing the region’s appliance market with the government’s plan to close the housing gap by 2020. We can expect that will affect the market positively. Brazil is in the initial stages of the same plan, and will experience positive growth for years to come.”
Argentina is also poised for strong and fast-paced growth, and with it, the appliance market as well. The country’s economy, now on track after a collapse in 2002, is anticipated to be one of the fastest growing markets in the region next to Mexico when its rising housing market is also taken into account.
Housing and Credit Booms
For the region overall, sales of both major and small household appliances have soared with the housing boom (also attributed to a rise in single-family housing with the region’s younger generations moving away from their parents’ household) in conjunction with a rise in the amount of personal credit available. Credit was previously less accessible, but is now more common with recent offerings from banks and retailers. Wal-Mart is one example. The appliance and consumer electronics retailer recently opened its own bank in the region, offering and expanding credit options to a previously majority unbanked population.
With the credit increase, more homeowners are using their new financial leeway to remodel—and are focusing on the kitchen. “There is an increase in combination products, such as combo microwaves and coffee makers,” Dold tells APPLIANCE. “These help with space restrictions for the consumer, and manufacturers are able to keep margins down with the use of fewer raw materials for these kinds of products.”
Besides housing trends, material and energy prices continue to affect the industry both worldwide and regionwide. Efficiency is emerging as an important trend in the region as fuel prices and water shortages are on the rise.
Anoop Singh, director of the Western Hemisphere Department for the IMF says, “In the region, the effects [of oil prices] are differentiated. South America is an energy-rich region, and as you go country to country, you will find countries that will be doing better because of the higher oil prices. On the other hand, in Central America and in terms of domestic pricing policies in South America, the higher world price of oil is a problem, and this is another factor that is affecting inflation in the region . . . inflation will also be affected by domestic petroleum prices if this situation holds up in the global oil market.”
Focus on Health and Comfort
Despite rising energy and material costs, the region’s manufacturers are focusing on health and lifestyles in their new product designs. With an emerging trend of households dining out instead of in the home,
Euromonitor says appliance makers pushed small electric appliances such as steamers, citrus presses, and smoothie makers to help keep the home at the heart of consumers’ appliance purchases. Also, an increasingly warm climate due to the global climate change is seen as part of the motivation behind a surge in the air-conditioning market and air-treatment appliances.
With the market expected to show overall growth, certain product segments are set for notable increases. These include microwaves, which currently have a low saturation level and have recently declined in price; split air-conditioning systems, as households replace room units; and refrigerator/freezer units, as refrigerators are replaced.
One segment that is expected to show a recession, however, is consumer electronics (CE). Manufacturers and retailers pushed CE product replacements for the 2006 World Cup event, which took sales away from home appliances. The trend is now reversing. CE sales are down, which is translating to some extent into kitchen appliance sales, Euromonitor says.
With Mexico and Argentina setting the pace for the region, domestic brands maintain a competitive edge over foreign counterparts, but that isn’t stopping them from entering the marketplace. Samsung, LG, Daewoo, and Bosch have helped introduce front-loading washing machines and also brought competitive pricing to some markets.
However, homegrown brands have a hold, and appear to have staying power. Brands such as Mabe and Brastemp will continue to see more successful years.