BMI View: The economic trajectory for the region remains divergent. Despite our expectations for slower real GDP growth in Panama in the next several years, it will remain the regional outperformer. On the other hand, we have a more mixed outlook for growth in the 'northern triangle' countries. While they will likely benefit from improved agricultural yields and stronger US demand for manufactured goods, Guatemala, Honduras and El Salvador are still vulnerable to significant structural macroeconomic weaknesses. We have upgraded our 2015 real private consumption growth outlook for several Central American economies, mainly due to an uptick in remittances from the US and the positive effect of cheaper fuel prices on household spending.
Headline Industry Data (regional averages)
2014 per capita food consumption (US dollar terms) = +4.8%; forecast compound annual growth rate (CAGR) 2014 to 2019 = +4.4%.
2014 alcoholic drink sales (litres) = +5.1%; forecast CAGR 2014 to 2019 = +4.6%.
2014 soft drink sales (litres) = +5.0%; forecast CAGR 2014 to 2019 = +4.6%.
2014 mass grocery retail sales (local currencies) = +6.2%; forecast CAGR 2014 to 2019 = +6.5%.
Key Company Trends
US Honduras Agricultural Agreement : In May 2015 the US government entered an agreement to support agricultural development and trade in Honduras. The US Department of Agriculture's Foreign Agricultural Service will provide the Honduran government with 30,000 tonnes of corn and 18,000 tonnes of soybean meal worth around USD17mn under the Food for Progress Programme. Proceeds from the sale will be used by the Honduran government to implement projects aimed at improving agricultural productivity, enhancing farmers' access to information and market skills. The projects supported by the agreement will focus on the creation of jobs and income opportunities for some of Honduras' most vulnerable citizens.
Massimo Zanetti Acquires Distribution Network : In April 2015 Italy-based coffee company Massimo Zanetti Beverage Group (MZB Group) acquired the production and distribution network of CECA. MZB will integrate the purchased network into its Distribuidora Cafe Montana in Costa Rica, helping it to expand its presence in the Costa Rican market. With the acquisition, Distribuidora Cafe Montana has become the third roaster of Costa Rica. The roasting company's production will increase to 206,500kg, representing a market share of 13.9% for both the retail and the food service sectors, reports DBR. Distribuidora Cafe Montana will add six more brands to its offering, focusing on the country's smaller retailers besides the traditional large distribution chains. CECA is a subsidiary of Germany-based Neumann Kaffee Gruppe.
Walmart Investment Plans : In March 2015 Walmart announced its investment plans for 2015 stating that in total MXN12.4bn will be spent on its Mexican and Central American operations over the year. The estimated investment on new stores will be MXN5.6bn to add 162,000 sq m of new sales area in the region. In Mexico sales area will increase by 2.1% whilst in Central America sales floor will increase by 5.4%. In May 2015 Walmart announced the opening of 8 new stores in Costa Rica for the year, 5 Maxmenos, 2 Maxi Pali and 1 Pali store, generating 2,400 jobs. The investment is worth USD100mn and is expected to result in an increase in sales of 4.3% In Guatemala the retailer is to invest more than USD47.7mn to build 6 new stores under the Despensas Familiares banner as well as remodelling and purchasing equipment for its distribution centres.
Key Risks To Outlook
Remittances act as a significant driver of daily consumption habits in the Central American region. The risks to our view for stronger remittance growth are evenly balanced. On the one hand, a sharper than expected acceleration in US growth would see remittances inflows come in higher than anticipated. On the other, should we see a substantial increase in deportations, this could modestly stymie remittances.