Slowing economic growth across emerging markets has been a growing concern for much of 2015. While China and Russia have seen a significant deterioration in their economies, the recession in Brazil is likely to have the largest impact on discretionary spending, including spending on toys and games. Over 2015, Brazil experienced a slowdown in its real economy, leading to deterioration in financial markets, and a sharp depreciation of the real. Amidst the declining economy, the country was also rocked by corruption scandals and a deepening political divide over unpopular austerity measures introduced in 2015. These conditions make any significant growth in the Brazilian traditional toys and games market highly unlikely in the short term, and only slow growth likely after 2016.
Forecast Growth in Retail Value Sales of Traditional Toys and Games in Brazil: 2015-2019
Source: Euromonitor International
Note: Constant (real) 2014 values, US$ y-o-y exchange rates
Rich households to soften the blow
Like most other emerging markets, Brazil is characterised by a significant degree of income inequality. In 2015, 54% of households had less than US$15,000 per year in disposable income, while those with incomes of over US$35,000 made up 14% of the total. The middle class in between these two marks makes up the bulk of the traditional toys and games consumer base. Households in lower-income brackets typically mostly spend on essentials, leaving little money for spending on toys and games. Rising unemployment and austerity measures have hit low- and middle-income households the hardest, causing a slowdown in overall toy sales, but households in upper-income brackets have fared better and typically have a higher degree of income security than poorer households.
Therefore, we expect growth in video games and high-price traditional toys and games like construction toys, as well as games and puzzles, to continue over the forecast period, despite deteriorating macroeconomic conditions.
Forecast Growth in Retail Value Sales of Toys and Games in Brazil in Key Categories: 2015-2019
Source: Euromonitor International
Note: Constant (real) 2014 values, US$ y-o-y exchange rates
Transformation delayed
A growing middle class is key to generating growth in toys and games in emerging markets. Economic growth in Brazil lifted large swaths of its population out of poverty, growing the middle class over the historic period, but a prolonged recession will stop these gains and may lead to a decline in the number of middle-income households. Following the 2008-2009 recession, birth rates in Brazil dropped to 14.7 births per 1,000 people in 2014, down from 15.9 in 2009. A significant deterioration in the financial wellbeing of the country’s middle class in 2016 would not only have sizable short-term effects on sales of toys and games, but may also lead to further declines in birth rates, depressing long-term market potential.