Regional Private Consumption Update: No Major Upside This Year, 2015 Only Modestly Better

BMI View: We forecast real private consumption growth to remain subdued throughout 2014 in most of Latin America, as ongoing global rebalancing dynamics continue to drive currency and labour market weakness. While we expect household spending to improve modestly in most of the region in 2015, consumption growth will remain below historical averages. The only exceptions are Mexico and Colombia, where we forecast real private consumption to accelerate steadily in the next few years due to declining unemployment and more favourable exchange rates.

We expect real private consumption in most of Latin America's major economies to continue to face headwinds throughout 2014, stemming from the effects of ongoing global rebalancing on exchange rates and labour market dynamics. Indeed, weaker commodities prices, as Chinese demand for industrial metals continues to soften, will weigh on export growth, particularly in Chile, Peru, and Brazil, which will contribute to higher unemployment and hamper household income. Furthermore, strengthening economic data out of the US confirms our expectations that Federal Reserve will continue to trim its asset purchasing programme, which we expect to drive additional capital outflows from emerging markets, contributing to exchange rate weakness and eroding consumers' purchasing power. While we expect a modest rebound in private consumption growth in most regional economies in 2015, it will be due largely to base effects and a slower pace of exchange rate depreciation, and household spending growth will still remain below long-term averages. However, two exceptions to the overall lower trend in subdued private consumption growth that most of the region will experience are Mexico and Colombia, where strong trade and investment ties to the US, combined with strengthening domestic demand, will drive an acceleration in household spending growth over the next few years.

Brazilian Consumer Will Remain Erratic At Best

Consumer Will Remain Under Pressure In Most Of The Region
Latin America - Real Private Consumption Growth, %

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This article is tagged to:
Sector: Country Risk
Geography: Latin America, Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela

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