The Outlook for the Emerging Market Consumer in 2016

2016 got off to a difficult start for the global economy with emerging markets suffering from investor jitters. What do these uncertain times mean for consumers on the ground in emerging markets?

The answer is not straight-forward; there is a lot of divergence in emerging markets in 2016, in some countries the consumer is holding up well, in others less so.

Overall, growth in consumer expenditure in emerging and developing economies will be pretty much on a par with 2015 – at 3.6% in real terms. Latin America will be the worst-performing region, dragged down by weak growth in Brazil, Argentina and Venezuela. On the other hand, growth in Sub-Saharan Africa will accelerate over 2015, supported by spending in Nigeria, Kenya and Ethiopia.

Real Growth of Consumer Expenditure by Category in Emerging and Developing Economies: 2016

consumer-expenditure-growth-emerging-developing-economies-2016

Source: Euromonitor International from national statistics/Eurostat/UN/OECD

Note: Data are forecast.

BRICs in the spotlight

In their divergent outlooks, the BRIC economies mirror their wider emerging and developing market counterparts. Accounting for almost one-in-two dollars spent in emerging markets, the BRIC outlook is of crucial significance to the emerging market narrative.

Best-performing Categories of Consumer Expenditure in BRIC: 2016

best-categories-consumer-expenditure-BRIC

Source: Euromonitor International from national statistics/Eurostat/UN/OECD

Note: Data are forecast and are in real terms.

  • Despite the Olympics, 2016 is going to be another bleak year for the Brazilian economy. A whole host of concerns, including, corruption, downgrades by the major ratings agencies, and government interference in the economy are dampening confidence. As a result of these factors, consumer expenditure will decline in 2016 for the second year running – with a projected fall of 2.2%. Economic woes from high unemployment to elevated inflation will exert negative pressure on spending;
  • Our macro model sees the pace of economic decline slowing sharply in Russia in 2016, but growth will remain in negative territory. Real growth in retail sales turned negative in January 2015 and is expected to continue to be in negative territory throughout 2016. This is driven by a huge fall in incomes in 2015 – especially at the low end of the distribution – there was for instance a 8% increase in households earning less than US$2,500 per annum in 2015. Other factors such as tight lending conditions and increased propensity to save will continue to depress consumption;
  • The outlook for China is for a continuing deceleration of economic growth – although we do not think a hard landing is likely. Consumer expenditure, whilst also slowing, continues to outpace real GDP growth on the back of wage gains, suggesting progress on rebalancing the economy towards consumption. Continued urbanisation, although decelerating, is a key driver of the economy and will help to sustain consumption;
  • According to headline figures, the Indian economy is a bright spot amongst the BRICs with India expected to see the strongest economic growth of these four economies. Despite this, consumer spending will grow at a slower rate than China’s – at 5.0% in 2016. The Indian consumer market remains undeveloped with retailing dominated by the traditional sector. Whilst this provides opportunities, it is also a drag on growth.

Will there be a return to the glory days?

We do not see emerging markets attaining pre-financial crisis levels of growth in our forecast period (to 2030). Even so, it’s important to remember that rates of growth will still outpace those of developed economies. Underlying trends such as urbanisation, population growth, employment growth, increasing access to technology, the continued development of the retailing sector and improvements in the business environment will underpin growth in consumer expenditure in many emerging economies.

Real Growth in Consumer Expenditure in Emerging and Developing Economies: 2000-2030

consumer expenditure growth emerging and developed economies

Source: Euromonitor International from national statistics/Eurostat/UN/OECD

Note: Data from 2015 onwards are forecast.

Winning the emerging market consumer

In these challenging times, companies that are best positioned to do well are those that are in tune with consumer trends in emerging markets. The attitudes, motivations, tastes and aspirations of consumers differ from country to country, so companies need to be on top of the detail. Brands must be kept relevant. Ikea is a company that knows this, and places a lot of emphasis on tailoring products and store design to fit with local demand.

Attitude to risk is also crucial; an emerging market strategy should always be a long-term one. Companies need to be ready to face ups as well as downs. Recognising its long-term potential, German pharmaceutical company, Merck, announced its intention to double sales in Africa by 2020 last year, at a time when many investors are worried about the continent.

 

To learn more about Emerging Markets, download our White Paper Emerging Markets During Crisis: Business Strategy in Times of Uncertainty