Latin America’s Growth and India the new Luxury spending Hotspot?

It always feels risky to express optimism about Latin America and the Caribbean (LAC). A “lost decade” of stagnant economies, dysfunctional politics and profound challenges like organized crime and low productivity mean that “LatAm bears” make the loudest, most convincing arguments—and have often been proven right in recent years.

But if you look carefully, the region is clearly benefiting from tectonic shifts underway in the world right now. The Ukraine war, mounting U.S.-China tensions, climate change and a broad reorganization of supply chains in the wake of the pandemic mean that countries and companies everywhere need dependable sources of food, energy and workers close to the United States. These needs are so great, in fact, that they may be enough to overcome the region’s undeniable headwinds.

No one is predicting a return to the glory days of the 2000s commodities boom. But even a small uptick in growth would be meaningful, and there are signs that’s happening: Foreign direct investment (FDI) in Latin America and the Caribbean soared 55% in 2022 to its highest value on record, during a year when FDI flows globally were shrinking. So far this year, FDI to Mexico is up another 40%, led by the “nearshoring” trend that studies suggest could also benefit countries as far south as Argentina. Investment in LAC soared 55% in 2022 to $224 billion, its highest value on record, during a year when FDI flows globally shrank 12%.

At the same time, in Argentina,  the $2.7 billion, 335-mile pipeline was inaugurated to great fanfare, connecting the Vaca Muerta gas field to the central part of the country. In one fell swoop, it ended Argentina’s colossal dependence on imported gas, saving the crisis-hit economy an estimated $4 billion a year in dollar reserves.

On the other side of the world, brisk digital transformation and a rapidly growing middle class are expected to drive India’s growth, lifting its economy to the third place by 2030, according to S&P Global Market Intelligence. This will put it behind only the US and China, overtaking Germany and Japan.

The economy will more than double to $7.3 trillion over this period, from $3.5 trillion in 2022, the financial information services firm said.

Conspicuous consumption is on the rise in India, which is one of the world’s fastest growing countries for people with $100 million in wealth. As China’s growth plateaus and Beijing cracks down on its billionaire class, India is positioning itself as Asia’s next hot-spot for luxury spending, propelled by a steadily rising stock market and surge in foreign investment.

A new class of wealthy entrepreneurs, executives and dealmakers are now broadening India’s luxury market beyond a handful of tycoons. Every year, fresh private members clubs are opening in Mumbai, a city with more people worth $100 million than Monaco, and as many billionaires as Singapore.

India is currently the fifth largest economy, having gone past the UK in 2020.

S&P Global Market Intelligence predicts India will log 6.6% growth in the current fiscal, with growth averaging 6.3% over the next three fiscal years. The near-term economic outlook is for continued rapid expansion during the remainder of 2023 and for 2024, underpinned by strong growth in domestic demand.

High-frequency indicators such as the Index of Industrial Production (IIP) and Purchasing Managers’ Index (PMI) surveys conducted by the firm indicate a continuation of the growth momentum.

Data released earlier this month showed IIP surged 10.3% in August, the highest in 14 months. PMI data pointed to strong optimism among service and manufacturing firms. Service optimism was at its highest in nine years in September. The manufacturing outlook improved to its best since the start of 2023.

S&P said India’s demographic profile will help it become the second-largest economy in Asia by 2030. The acceleration of foreign direct investment (FDI) inflows into India over the past decade reflects the favourable long-term growth outlook, helped by a youthful demographic profile and rapidly rising urban household incomes.

India’s net $71-billon FDI inflows in FY23 were nearly 18 times higher than $4 billion in FY04.

India’s strong FDI inflows have been boosted by large investments from global technology MNCs such as Google and Facebook that are attracted to India’s large, fast-growing domestic consumer market, as well as a strong upturn in FDI inflows from manufacturing firms.

The doubling of internet users to 1.1 billion in 2030, from 500 million in 2020, will help create unicorns, which, in turn, will attract investments from multinationals.

The ‘fastest growing economy’ tag will also make India an important market for multinationals, with investments in “manufacturing industries such as autos, electronics and chemicals as well as services industries such as banking, insurance, asset management, healthcare and information technology.

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