Investing.com – RBC Capital expects a challenging year for consumer markets in 2025, highlighting financial pressures from rising inflation, rising interest rates and unemployment in a research note this week.
The company's global report highlighted several key trends shaping the consumer staples sector.
A challenging consumer environment: The bank said its analysts largely share the belief that the health of global consumers “has come under material financial pressure as the effects of rising interest rates, unemployment and rising inflationary pressures weigh on fundamentals across the consumer landscape.”
They expect this dynamic to continue in the near term.
Value-oriented behavior dominates: As economic pressures continue, RBC said consumers are gravitating toward private-label products, smaller basket sizes, and discount channels.
They add that globally, there is a preference for value-based spending, including dining at home and budget restaurant meals.
Focus on volume growth: Organic growth is expected to be based on volume rather than pricing as inflationary pressures subside and promotional spending rises. RBC analysts point out that this dynamic will significantly impact the stock's performance.
Geopolitical and regulatory challenges: A second Trump administration may impose new tariffs, adding to cost pressures that could cripple growth, according to RBC.
In addition, geopolitical headwinds, especially in China and Latin America, are expected to weigh on consumer sentiment. “We see a range of geopolitical factors at play including (but not limited to) continued weakness in China and the Middle East and the potential for slower growth in Europe and Latin America (Mexico and Brazil have shown signs of slowing growth),” RBC said.
Margin pressures: RBC believes that balancing profitability will be critical as demand moderates and input costs fluctuate. Increased promotional activity and the need for higher marketing spend will also impact margins.
China path: “While the region has dealt with challenging trends for several years now, consumer sentiment remains sluggish and trends have lagged behind expectations, especially in the latter half of 2024,” RBC stated.
The bank added that category growth trajectories in the region remain disappointing, and it expects a sequential improvement, but in general, its analysts agree that “it will take some time before the region becomes a real engine of growth,” while they have not yet seen government stimulus have a tangible impact. . Spending.
Possibility of merger and acquisition activity: With organic growth difficult to achieve, RBC expects mergers and acquisitions to play a larger role, especially if interest rates improve in the latter half of 2025.
