LATAM GMs are cautiously optimistic about 2019

As Latin America executives head into strategic planning season, many questions arise as to what assumptions they should make about economic growth, FX valuations, and customer behavior for the rest of 2018 and 2019. Moreover, although some risks are expected to abate, executives will be wise to account for unexpected events affecting Latin America, whether in the form of political transitions towards business-unfriendly governments, or global events stemming from rising trade tensions, geopolitical conflicts, or business cycle evolving dynamics in developed markets.

With all these questions in mind, FSG hosted an event with a group of Latin America general managers in Miami at the beginning of June, in which we presented our regional outlook for 2018-2019. Most of the discussion revolved around the implications of regional trends for resource allocation decisions, as well as actions to take to ensure top-line and bottom-line performance comes in line with corporate centers’ expectations; and as we will see, corporate mandates are becoming more ambitious.

Key takeaways from the event

  1. Sales levels will not return to pre-slowdown levels as fast as corporate centers would expect:Most FSG clients will have to meet top-line targets this year for Latin America that are between zero and 10 percentage points higher than in 2017. With economic growth expected to accelerate, especially in big markets such as Brazil, targets will become even more aggressive. Some corporate centers are already working with the assumption that Latin American markets will be able to deliver the same level of sales as they did at the tail end of the commodity super cycle, but according to FSG clients in the room, sales recovery will take longer to materialize. 38% of clients expect sales to revert to pre-slowdown levels (pre-recession levels in some markets) only by 2020, versus 25% that expect that to happen already next year. Only 13% of clients in attendance had already achieved pre-slowdown sales
  2. Confidence about hitting 2018 targets is relatively high:None of the clients in room reported not being confident about hitting 2018 targets, although 56% said that they were only somewhat confident. The biggest fear that LATAM GMs have as it pertains to their ability to hit their 2018 and 2019 targets has to do with underperformance in key markets, namely, Brazil, Mexico, Colombia, and Argentina. That fear is justified if we look at Mexico’s electoral outcome on July 1st, ongoing uncertainty as to whether the center-right in Brazil will be able and willing to coalesce behind a single candidate prior to elections in October, or whether Macri’s administration will be able to tame FX depreciation and inflation ahead of presidential elections in October 2019.
  3. Brazil will recover its throne as the main destination for new investment:LATAM GMs will have more markets to choose from as they allocate investments in the region, and it is important to note that in stark contrast with 2016, when there were five markets in recession, only the Venezuelan economy will be contracting in 2019. As a matter of fact, 38% of clients in attendance will be making moderate changes to their resource allocation strategy in the region in 2019. In terms of winners and losers in the region from this resource reshuffling, Brazil stands to experience the greatest increment in corporate investment, followed by Central America and the Caribbean. It is important to note that despite rising uncertainty in Mexico, 21% of FSG clients will increase their investments in this market
  4. NAFTA exit, a populist backlash in Mexico, and a US recession are the biggest fears held by LATAM GMs:Not surprisingly, LATAM executives concentrate their fears on Mexico’s fate, which can be affected by both domestic policy, US policy, and US economic performance. After a much-better-than-expected 2017, Mexico has now become the biggest downside risk for 67% of FSG clients, the same proportion of clients that now see Brazil as their greatest upside opportunity.

Our Miami Executive Roundtable ended with a discussion around key strategic imperatives for 2019. These revolved about the need to show a strong track record of outperformance in order to attract corporate resources, the need to continue to rely on scenario and contingency planning as a risk mitigation strategy, and the need to reconsider where to play and how to win in Latin America.


For a full debriefing of the event takeaways, or our Latin America outlook, FSG clients should contact their client relationship director.Not a client? Please contact us to learn more.

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