After posting anemic growth of 0.1% in 2012, Latin America''''s manufacturing sector is poised for moderate growth through 2014, according to a new report.
The Manufacturers Alliance for Productivity and Innovation''''s Latin America Manufacturing Outlook is a semiannual analysis that examines the latest trends and provides a near-term forecast for 16 major industries.
The report, authored by Fernando Sedano, Ph.D., MAPI economic consultant, focuses on Latin America''''s three largest economies—Brazil, Argentina, and Mexico—as these countries are responsible for more than 80% of the manufacturing output in the region.
MAPI forecasts that overall manufacturing output in Latin America will advance by 2.1% in 2013, buoyed in part by Brazil''''s carmaking industry and its cascading effects on Argentina, and by 2.8% in 2014, when Mexican factories are expected to go back into stronger growth mode presuming benign U.S. economic conditions.
"Brazil''''s manufacturing output rebound is aided by a host of tax breaks implemented in late 2012 intended to spur demand, deplete inventory, and drive production," Sedano said. "Mexico''''s short-term outlook continues to hinge heavily on the U.S. industrial cycle, but we remain confident that the rebound expected for later this year will continue in 2014. Although uncertainty reigns in Argentina, the automotive industry will reach record-high production levels this year in response to the elevated demand from Brazil and the domestic market."
In developing its forecast, MAPI uses data from national statistical agencies, assigning weighted average annual production indexes for each industry. The weights are determined by a country''''s value-added in U.S. dollar terms in each sector, using MAPI''''s proprietary econometric model.
Brazil''''s manufacturing activity (48.7% of MAPI''''s regional index) stopped growing roughly three years ago and posted negative growth rates in the last six quarters. Its auto industry, however, showed strong 12.7% growth in the first quarter of 2013. In addition, tax cuts on purchases of industrial goods are boosting demand, in turn lowering elevated inventory levels and suggesting upcoming production gains. MAPI forecasts Brazil will see 3.3% manufacturing growth in 2013 and 3.7% growth in 2014.
Mexico''''s manufacturers (38.7% of the index) struggled early in 2013, affected by weak U.S. demand; as a result, growth will be limited this year. Recent INEGI data, however, suggest activity is picking up. MAPI anticipates 1.7% manufacturing growth in 2013 and a 2.7% gain in 2014.
Argentina''''s manufacturing prospects (12.6% of the index) in 2013 have been hampered by softer demand from Brazil, the destination of most of the country''''s manufacturing exports, and by low consumer confidence levels. As in Brazil, though, an automotive upturn (19.1% gain from January through May 2013) should filter through key supplying industries. MAPI anticipates 2.3% growth this year but remains cautious in its outlook. Sedano notes that the forecast of a marginal 0.8% advance in 2014 takes into account the negative effects on growth that needed macroeconomic adjustments will bring about.
All 16 industries reviewed are expected to grow in 2013 and 2014. Three industries—food and beverages, motor vehicles, and machinery and equipment—account for roughly 45% of the region''''s manufacturing and are therefore most important to the forecast. Production of food and beverages—the largest industry in the region and one of the most stable—should grow by 1.9% in 2013 and 2.4% in 2014. The automotive sector is forecast to improve by 6.3% this year and 5.8% next year. Machinery and equipment is forecast to see growth of 5.3% in 2013 and 4.9% in 2014.
