Brazil’s economy has been affected by the global financial crisis but Simon Maddrell of Euromonitor International believes the country’s soft drinks sector is in good shape to withstand the downturn, thanks to solid consumer confidence and the swift remedial economic policies adopted by the Government.

Total volume sales of soft drinks were up 7.5% in Brazil last year, representing a growth surge of some 1.4bn litres. Crucially, the carbonates sector – the third biggest in the world – registered an aggressive 7% upturn, its best performance in over ten years. 

In short, therefore, 2008 was a boom year for Brazil's soft drinks market. All of which seems a far cry from the gloomy consumption data emanating from more developed markets. And, furthermore, there is good reason to expect Brazil’s soft drinks sector to continue to buck global trends.

Even late last year, as the industrialised banking sector skidded over a precipice, Brazil's soft drinks industry was able to peer into the future with a genuine feeling of confidence. While not immune to unfolding events, the Brazilian economy had built a sufficiently robust platform to weather the worst of the contagion. However, as each month passed so the global financial climate worsened and, critically, international investors started exiting emerging markets like rats from a sinking ship. While Brazil is less exposed than other emerging markets, such as Mexico, to the weakness of the US economy, it is, by virtue of high-profile BRIC status, hugely vulnerable to any major slowdown in international investment activity.

For Brazil, a country well accustomed to periods of macro-economic volatility, 2009 data has started, therefore, to look all too familiar. And the timing of the slowdown, just at a moment when its emerging market status was soaring, has been a cause of frustration for the Government. Indeed, although the Brazilian government is currently sticking to its 2.5% GDP growth forecast for 2009, the latest private sector consensus compiled by the Central Bank forecasts a growth rate of only 1.5%, down from the 2% it projected last month. The National Industry Confederation (CNI) reported in early March that it expected zero GDP growth in Brazil this year, and possibly worse.

If the forecasts are correct, 2009 will be Brazil's poorest economic performance since 2003 when real GDP grew 1.1% and the soft drinks market, in turn, grew a sluggish 1% by volume. In that year, carbonates, bottled water, sports drinks and RTD tea all registered negative growth curves. Conversely, the low-price concentrates sector managed a robust 5% upturn. The key question is, therefore, whether we can expect to see the same trends this time around. 

It would be wholly unrealistic to argue that key volume sectors, such as carbonates, could sustain 2008 levels of growth as the impact of the global economic crisis worsens, but neither would it be wise to assume that the market will inevitably tank as the domestic economy tightens. Euromonitor International remains bullish about the prospects for Brazil's soft drinks market as a whole, with annual volume growth projected at 4% for both 2009 and 2010. 

Euromonitor forecasts 10.3% growth for carbonates between 2008 and 2010; 12.2% growth for bottled water; 15.7% growth for fruit/vegetable juices; and 9% growth for RTD tea. Meanwhile, it only anticipates 0.1% growth for concentrates, the sector that flourished when economic growth last hit the buffers.

Brazil's economic roots are far stronger today than a decade ago, and much stronger even than five years ago. And there are further good reasons for optimism.

In the first place, Brazil is an old hand at economic crisis, having experienced more than its fair share of instability over the past two decades. It is waning consumer confidence that can be so damaging to soft drinks demand, both in on- and off-trade channels. But because of past experience Brazilians tend to be more savvy about such downturns than their developed world counterparts and, in turn, less susceptible to a sudden and dramatic dip in confidence. 

Secondly, Brazilians broadly see the current global financial crisis as something that originated outside their own borders. They are, therefore, less critical of their own government's role. Again, this has positive repercussions for consumer confidence.

Thirdly, the Government itself has responded swiftly to the global crisis, injecting over US$100bn of additional liquidity into the economy since September 2008 and shoring up key industries (such as the automobile, construction and agricultural sectors) with short-term tax breaks. Arguably the most important response has been to maintain a commitment to big social programmes that impact on the poor, while giving the green light to an above-inflation increase in the minimum wage, which was hiked 12% in February this year.

Indeed, while the Government might be guilty of over-playing 2009 GDP growth potential, it is not, as yet, reneging on the promises it made to low-income households. And the lower tiers of Brazil's income pyramid have become increasingly important drivers of soft drinks demand. 

Furthermore, middle-income Brazilians have been buoyed by the cut in interest rates in March, and are expectant of further reductions during the year. Aggressive monetary policies will also encourage renewed confidence among international investors as the year pans out.

Collectively, these factors mean that Brazil's soft drinks industry is potentially better positioned than those in most emerging markets to navigate the global downturn. Few people in the industry will dispute that 2009 will be a difficult year and there is certainly no room for complacency, but this is no time for despondency either. Brazil, quite simply, is rising up the global economic order. That course might have been slowed by the current period of global crisis but it has not been derailed.