The Latin American Middle Class Has Been Expanding Steadily Thanks To Growth In Real Wages
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Ternium
Ternium is a leading producer of crude steel in Latin America with an aggregate annual production capacity of 12.3 mt. The company produces HRC and CRC steel, tailor-made flat products, bars and wire rods.
Latin America consumer
Households in Latin America are characterized by moderate credit-to-gross domestic product (GDP) ratios (excluding Chile), high labor force participation rates (also excluding Chile) and rising consumer confidence following the downturn related to COVID-19. The Latin American middle class has been expanding steadily thanks to growth in real wages, driven in part by the boom in demand for hard and soft commodities. For lower income households, particularly in Mexico, foreign remittances, fiscal transfers and significant increases in the minimum wage, has cushioned the impact of rising inflation on household finances.
One of the biggest drivers of rising consumption in Latin America is the policy dividend from orthodox economic decision making. This has contributed to rising investment and falling unemployment which, in turn, is driving financial deepening as household incomes rise to levels which enable increased acquisition of durable goods including autos and increased penetration of financial products such as payroll deductible loans and mortgages.
Brazil’s mortgage-to-GDP ratio14 rose to 9.5% in 2022, up from 6.2% ten years ago. While the growth is impressive, the penetration of mortgages remains a fraction of those in the US, where the mortgage-to-GDP ratio is 77% and well below emerging market peers such as South Africa. Latin America’s credit-to-GDP ratio of 72% remains below emerging market peers including Asia at 140% and emerging Europe at 92%.15 Although we would caution against a too rapid increase in this ratio, a move towards the emerging market average of 100%, over time, would appear reasonable to us.
Latin American love affair with brands
One of the significant features of the Latin American consumer is their love of brands. This has made it difficult for low-cost leaders in the fast-moving consumer goods (FMCG) category to penetrate large consumer markets in Mexico and Brazil, and dislodge incumbents. As a result, consumer companies in the region maintain significant pricing power. It has also enabled high market share of category leaders including Kimberly-Clark de Mexico, FEMSA, which distributes soft drinks, and AMBEV, the Brazilian listed subsidiary of the world’s largest beer company AB InBev.
