After posting anemic growth of 0.1 percent 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 forecasts that overall manufacturing output in Latin America will advance by 2.1 percent in 2013 – buoyed in part by Brazil’s car-making industry and its cascading effects on Argentina – and by 2.8 percent 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.”
The forecast stems from the organization’s Latin America Manufacturing Outlook, which 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 percent of the manufacturing output in the region.
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.
INSIDE THE NUMBERS
Brazil’s manufacturing activity, which represents 48.7 percent of MAPI’s regional index, stopped growing roughly three years ago and has posted negative growth rates in the last six quarters, the organization says in a news release.
Its auto industry, however, showed a 12.7 percent 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 percent manufacturing growth in 2013 and 3.7 percent growth in 2014.
Mexico’s manufacturers – representing 38.7 percent of the index – struggled early in 2013, affected by weak U.S. demand. Consequently, growth will be limited this year. Recent data from the National Institute of Statistics and Geography (INEGI), on the other hand, suggest activity is picking up. MAPI anticipates 1.7 percent manufacturing growth in 2013 and a 2.7 percent gain in 2014.
Argentina’s manufacturing prospects – 12.6 percent 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 percent gain from January through May of this year – should filter through key supplying industries. MAPI anticipates 2.3 percent growth for the nation this year but remains cautious in its outlook. Sedano notes that the forecast of a marginal 0.8 percent advance in 2014 takes into account the negative effects on growth that needed macroeconomic adjustments will bring about.
GOOD NEWS FOR ALL
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 percent 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 percent in 2013 and 2.4 percent in 2014. The automotive sector is forecast to improve by 6.3 percent this year and 5.8 percent next year. Machinery and equipment is forecast to see growth of 5.3 percent in 2013 and 4.9 percent in 2014.
About the Manufacturers Alliance for Productivity and Innovation
The Manufacturers Alliance for Productivity and Innovation (MAPI), founded in 1933, contributes to the competitiveness of U.S. manufacturing by providing economic research, professional development, and an independent, expert source of manufacturing information.