Brazil’s economy contracts, cosmetics players show the strain

21-May-2019 - Last updated on 22-May-2019 at 23:06 GMT

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The indications are that the much anticipated continued revival of Brazil’s economy is not happening, which is putting a strain on cosmetic and personal care players.

The largest country in the Latin American region, and by far the most important for the cosmetics and personal care sector, shrank in the first quarter of the year, according to key central bank statistics.

The economy shrank by -0.68% during the quarter, while in April the IBGE inflation rate hit 4.9%, creating tough conditions for the retail sector and consumer industries, which have been weighing down on results for some of the biggest companies.

Optimism begins to fade

At the beginning of the year a new far-right wing president took office, Jair Bolsonaro. Economists had widely tipped the presidency to introduce measures that would trigger further economic growth, but it seems the opposite has happened so far.

The statistics that show the country’s economy is shrinking mark the first contraction since the start of 2016, giving the country a much needed growth spurt following a tough two years from 2014.

Now the initial confidence that Bolsonaro would attract more investment to the country is being replaced by doubts, with analysts slashing their earlier predictions and the central bank indicating that there may be more weakness ahead.

Personal care players hike prices

The rising inflation is also forcing many consumer goods companies to raise their prices, with the health and personal care contributing the most to the increases.

Breaking down the 4.9% inflation increase in April, prices in the health and personal care area rose by 1.51% during the month, which compared to increases of 0.63% for the food and drink sector.

Currently policy makers are predicting that inflation will peak in May and should start to subside to around 4.25% by the end of the year.

Avon feels the pinch

Avon, which is one of the biggest cosmetics and personal care players in the Latin American region, has certainly felt the pinch during a tough quarter for its operations in the region.

It reported that its revenues in the south Latin American region were down 17% during the quarter, to reach $414.7 million.

Brazilian mega brand Natura faired better during the quarter, reporting that revenues were up by 8.5% for its operations, which are focused on the Brazil market, but still reported that profits were down.