Despite GDP forecasts for 2017 being maintained or improved in most markets, the quarterly update forecast for packaged food shows a downgrade globally and in key markets, particularly in large developed economies. Poor forecasts for Mexico, the UK and the US reflect potentially adverse economic policies. As stagnation hits developed markets, and expansion in emerging markets is more challenging to achieve, key players are lowering their organic growth targets and focusing on cost cutting.
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Due to the resilience of the global economy in 2016 and the GDP upgrades in most large economies, the packaged food forecasts have not seen a major change in the last quarter. However, numerous geopolitical risks and a high level of uncertainty weigh on consumer sentiment and contribute to recovery being slow in many developed economies, notably in the Eurozone, with high levels of unemployment also contributing to low levels of consumer confidence, leading to a downgrade of packaged food growth forecasts.
In a context of sustained low growth across developed markets and high levels of uncertainty in many emerging markets, notably Mexico and to a lesser extent China, large packaged food players are taking a cautious approach in their organic growth forecasts, with some companies instead choosing to focus on cost cutting, in order to maintain profits while building a war chest for future acquisitions.
The no-deal Brexit scenario is forecast to have by far the greatest impact on packaged food sales in the UK, and to have a more modest impact on EU economies. The adverse policies scenario following the election of President Trump in the US is forecast to create a greater disturbance to Mexico’s packaged food sales than to the US.
A recovery in Brazil’s economy and the resilience of China’s growth lead to reduced downside risks, with both markets still offering major growth opportunities for global packaged food companies to offset stagnation in their domestic markets, notably for General Mills and Yakult. The robust economic recovery in oil-dependent Russia, leading to an upgrade in forecasts for baby food and impulse-driven categories, has not been mirrored by a similar improvement in Nigeria.