Uncertainty Killing Forecast but Detonates Action

JORGE VARGAS
CEO México
Kantar
Jorge.Vargas@kantar.com


Mexico stands in a very complex and shaky balance: On one end the Mexican economy continues to slow down in the face of high international volatility and a growing threat of cutting the influx of dollars to the Mexican economy due to President Trump’s America First protectionist policy.

On the other hand, the Mexican Government will need to balance its spend to reduce its debt – and prevent a lower rating from international financial institutions to access credit - while at the same time avoiding to drive the economy into a steeper slowdown by cutting too much of its social and infrastructure programs.

The International Monetary Fund cut its growth forecast for Mexico in 2016 from 3.0% to 2.6%. This was mainly due to the general decrease in Latin America, the stagnation of China's economy, the collapse of oil prices, fluctuations in exchange rates, and the barely moderate growth of the United States.

In response to speculation to President Trump’s views of NAFTA and Mexico, both Mexico's Ministry of Finance and Public Credit and the Bank of Mexico, highlighted the strength of Mexican finance and institutions. The first 100 days of Trump’s administration will define if investors´ speculation is only temporal or if potential changes in the bilateral relationship between Mexico and the US do happen. Uncertainty is still present.

The structural reforms undertaken by the Mexican Government seek to bring comparative advantages to the country, by reducing the cost of power and telecommunications, while significantly increasing educational standards.

But growth has been weaker than expected, well below the expectations driven by these reforms because there has not been a strong focus on the main problems plaguing the country, such as insecurity, the “informal” sector that employs over 50% of the economically active population, and the corruption prevailing in many parts or the country.

FALLING BRAND VALUE

The Private Consumption Index shows a decrease of 2.2%, the largest fall in seven years. At the same time, domestic demand also slowed, and there has been only a modest increase in the Goods and Services Consumption Index. In short, in this uncertain economic landscape we are witnessing the consequences of trust levels that have not recovered since 2013. The slowdown in different industries, such as manufacturing and construction, the weakness of the Mexican peso against the dollar, and the restricted increase of actual salaries, have all impacted Mexicans' wellbeing and have impacted spend on brands and goods.

Many durables – like the Auto industry - saw an increase in 2016 due to Mexicans anticipating higher prices originated from a exchange rate with the US dollar. That is over now that many companies are finally adjusting their prices to reflect the exchange rate of a weaker peso.

A STRATEGY FOR BRANDS

From the perspective of the corporations, our Insights 2020 report indicates that the most important areas of opportunity for brands' efforts include: consistency in points of contact (42%), a vision focused on users and shared by everyone in the organization (38%), openness to risks and experimentation (27%), and a skill for storytelling (38%).

In short, when money is scarce, trust is low, and corporations lack a vision focused on consumers, loss of value is understandable. But let us remember, this kind of phenomena does not occur just in the short-term, it develops over time. We recommend companies change their mindset and, instead of focusing only on short term bottom line actions, continue investing more in customer satisfaction and retention.

Also, given the political landscape with the US, brands that focus their message on ‘vouching’ for Mexico will benefit of a higher predisposition from consumers.

In the end, uncertainty calls us to action: Keep building brands. Keep investing.

The ones that do, come out stronger when better economic conditions arrive.

Thought Leadership

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Methodology and valuation by Kantar Millward Brown


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