gE Blog Series: Latin America Outlook Part 3 - The Growing Middle Class
Latin America, a region once plagued with high inflation, has seen a drastic shift in spending and consumption trends in the past decade. This shift of consumption has been due to multiple factors, particularly the economic boom and declining poverty of the region. In the past decade, 50 million people in Latin America have joined the middle class according to a World Bank study.
This change is transforming needs to wants. Instead of buying low end products, middle to high-end products have become popular; such as cars, electronics, and beauty products. This helps explain why countries such as South Korea are recognizing huge increases in exports to the trade region. In 2011, trade boomed to an astounding $35 billion, up an estimated 18% over 2010. This increase came in large part due to the sale of automobiles, electronics, and home appliances.
Canadian banks are also seeing gains in the trade region. One in five bank mortgages are backed by Scotiabank, which has the largest presence in Latin America. The banks strategy is aimed at lower income clients who are moving up the ladder of social class.
To hold on to these gains, policy changes need to be put in place related to productivity, employment, education and growth. Without a sustainable framework to move forward with, the gains could be lost fairly quickly in today’s highly volatile world economy. Better access to quality education will help sustain these gains in the long term. Education is crucial to moving out of poverty and to therefore increase international business activity. Combine that with safety nets put in place for the unemployed, and you have a recipe for sustainable growth ahead in Latin America.