The risk of recession in the US, albeit low, is heightened by political uncertainty since the 2016 presidential election, with the packaged food sales forecasts in North America and Mexico downgraded. A no-deal Brexit is a key risk for packaged food in the UK and Europe, while in China, a hard landing scenario remains possible, despite the stronger economic forecast for 2017. Mergers and acquisitions may help companies to sustain growth in an uncertain environment.
Despite an upwards revision to the 2017 GDP forecast in the US, packaged food sales are seeing a downgrade, linked to the greater uncertainty brought about by the outcome of the 2016 presidential election and its potential implications for the US economy, which could see a severe recession scenario, albeit a low probability one. This also poses risks for packaged food sales in NAFTA countries, with Mexico being the most vulnerable.
In Europe, the main factor driving uncertainty is linked to the potential impact of Brexit, with a no-deal Brexit being a significant risk to packaged food, with major repercussions in the UK, but also across the EU, though to a lesser extent. Categories driven by impulse consumption and premiumisation are likely to be the most impacted, with consumers expected to switch to cheaper variants.
While China’s economic growth forecast has been slightly upgraded for 2017, the risk of a China hard landing remains a significant threat to packaged food sales growth, with baby food and dairy likely to cease being major growth engines under this scenario, while less mature categories, such as breakfast cereals and ready meals, could be strongly hit by a switch towards substitute products.
In a context of low growth and high uncertainty, the appetite for mergers and acquisitions to sustain growth may pick up among packaged food giants in 2017. As the US stock exchanges have seen robust performances, US players are likely to be most active, as Kraft Heinz’s merger bid for Unilever suggests. With Kraft Heinz likely to seek other mega-deals in 2017, other key packaged food players will remain in the spotlight as the next potential targets.
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