According to a report from the Wall Street Journal, "in recent years, Latin America has at times rivaled Asia as a source of high-octane profit fuel for many global companies. Now, financial turmoil in parts of the region is making investors jittery and forcing corporate executives to explain how they are navigating growing risks there".
"Brazil has long been one of the fastest-growing markets for appliance maker Electrolux AB. But the Stockholm-based company said Friday that a slowing Brazilian economy and the weakness of the country's currency hurt its fourth-quarter earnings. "We foresee lower demand in Brazil over the next few quarters," Electrolux added.
During 3M Co. 's conference call with analysts Thursday, Venezuela proved to be a bigger talking point than China, even though 3M's Chinese sales are about 20 times as much as in Venezuela.
"There's no hedging policy that people can use to offset the significant risk of inflation or the risk of currency devaluation," analysts say.
"Latin America isn't uniformly bleak, of course, and global companies still tend to regard many of its countries as good sources of growth in the long term".
"Brazil's economy is growing slowly, damped by high interest rates and inflation, while Venezuela and Argentina struggle with rapid inflation and plunging currencies. But Mexico, Chile, Peru and Colombia are doing relatively well.
IHS Global Insight, an economic research firm, expects Brazilian economic growth of just 2.4% in 2014. The firm predicts that overall Latin American economic growth this year, including Mexico and the Caribbean, will be 2.9%, up modestly from last year's 2.6%.
That compares with IHS's forecast for 2.7% growth in the U.S., 1.3% in the European Union and 8% in China.
Drooping currencies in Brazil, Argentina and Venezuela have reduced the value of sales there in dollar terms, while inflation has made it hard for many consumers to afford much beyond necessities. Argentina's heavy government spending and a loose money policy have fueled inflation estimated at more than 25% a year. In Venezuela, inflation is running at more than 50%, and price controls are creating shortages.
CNH Industrial NV, the world's second-largest seller of farm machinery behind Deere & Co., reported last week that unfavorable currency movements turned what would have been a 4.2% increase in fourth-quarter revenue into a 1% decline from a year earlier to $9.34 billion. Brazil is a major market for CNH, and the weakening of the Brazilian real cut the value of those sales in dollar and euro terms.
For appliance manufacturer Whirlpool Corp. , based in Benton Harbor, Mich., Latin America—mainly Brazil—represents more than a quarter of sales. In dollar terms, Whirlpool's Latin American sales edged down 0.5% in 2013, and the company predicted that industrywide sales of appliances in Latin America will be flat this year.
Procter & Gamble Co. said during its Jan. 24 call on quarterly earnings that it is dealing with price controls in Venezuela, but that they don't apply to all P&G products. The company said it is in touch with government officials about reviewing the controls regularly. "They understand the need for some level of pricing for both international and local competitors to remain viable," said CFO Jon Moeller".
