issue: January 2009 APPLIANCE Magazine
Appliance Industry Forecasts: Latin America
Latin America Rides the Storm
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After several years of economic growth, Latin America’s economy - and appliance industry - feel the impact of a housing slowdown.
According to the Organization of Economic Cooperation and Development (OECD), Mexico, Brazil, and Chile are expected to face slower growth and high inflation, which could limit central banks’ ability to cut interest rates. Of the three nations, Mexico is the most vulnerable to being affected by the economic troubles in the U.S. economy, which the OECD sees contracting 0.9% in 2008. The organization said it expects Mexico’s GDP to grow only 0.4% in 2009 after posting 1.9% growth in 2008.
“The weak U.S. economy and a fall in oil production will cut exports over the next several quarters, while the effects of the financial turmoil will depress domestic demand growth,” the OECD said. Recovery will likely begin in 2010, reaching 1.8%, it added.
According to Euromonitor, Mexico is the economy most vulnerable to a downturn in the United States. Approximately 30% of the Mexican economy depends on a mixture of remittances, exports, and tourism from the United States.
Brazil, the region’s largest economy, is less vulnerable to events in financial markets but it, too, will see slower growth in 2009. The OECD also said economic activity “appears to be slackening” in nonmember Brazil, although that economy has maintained higher growth rates than Mexico. For Brazil, the OECD sees growth slowing to 3% this year from 5.3% in 2008, picking up to 4.5% in 2010. In June, the OECD forecast Brazilian growth of 4.8% in 2008 and 4.5% in 2009.
Chile faces a weaker economic environment as copper prices have fallen and strikes at mines have slowed export growth, the OECD said, predicting economic growth of 3.9% in 2008 and 2.6% in 2009, with expansion also expected to pick up again in 2010. Chile’s central bank, like that of Mexico, could consider easing monetary policy next year if inflation conditions allow for it, the OECD added.
Housing Slumps in Brazil and Mexico
In November 2008, Brazil’s housing market was one of the world’s most dynamic. January–September sales of new houses and condos were up 25% from the same period in 2007, ignited by a rising economy, job growth, an increase in affordable mortgage loans, and legal changes that improved banks’ powers to repossess property. In the first nine months of last year the total value of mortgage loans made rose 89% from the year-earlier period. In São Paulo alone, 67 new housing developments opened subdivisions in October, three times the average number of new developments unveiled monthly over the first half of the year. Fueling the demand were mortgage loans that featured 11% interest rates, which is low for Brazil. As recently as 2002, mortgage rates were 40%.
However, one month later, in December, the global economic slump drastically slowed the industry, due to a credit crunch and collapsing stock market of the last two months of 2008. Mortgage applicants are having a tougher time qualifying for loans, and homebuilders are unable to get short-term loans with which to buy land and build more new houses. Brazil’s largest homebuilder, Cyrela Brazil Realty, laid off 300 workers in late November and lowered its sales estimate by 25% for the year.
But the real issue, said President Luiz Inacio Lula da Silva in a recent speech, is ebbing consumer confidence. “The problem is not lack of money, the problem is that people are afraid,” Lula said. “Workers become afraid of losing their jobs and don’t buy anything. But if they don’t purchase, what happens? Factories close and jobs are lost, which is what they fear.”
Mexico has locked in $3.6 billion in multilateral loans to help its housing industry withstand the global recession, but banks need to do their part, said a Bloomberg report. In early December, the Inter-American Development Bank approved a credit for $2.5 billion for Mexico’s Federal Mortgage Society. The World Bank has already pledged $1.1 billion for the society, known as the SHF, to offer credit to Mexico’s homebuilders and small nonbank mortgage lenders, the report said.
Help may also come from two mortgage companies. INFONAVIT, the main mortgage provider in Mexico, announced its target to provide 500,000 mortgages in 2009, and FOVISSSTE, the housing fund for federal government employees, also announced important targets for the year to come in the range of 100,000 mortgages. These two institutions will be fundamental for the housing industry, as many people may obtain their mortgages through both companies.