Latin America Manufacturing Production Growth to Slow

The manufacturing industry in Latin America continued expanding during the first three quarters of 2008, underpinned by strong growth in Brazil and Argentina, but a new report says macroeconomic conditions in the region have deteriorated, and growth expectations for 2009 have dropped sharply. Manufacturing production growth will decelerate appreciably in 2009, according to the Manufacturers Alliance/MAPI Latin America Outlook: 2008-2009, a bi-annual analysis that examines the latest trends and provides a near-term forecast for 16 major industries.


The report focuses on Latin America's three largest economies-Brazil, Argentina, and Mexico-as these countries are responsible for more than 80% of the region's manufacturing output. MAPI lowered its forecast for overall manufacturing output in Latin America in 2008 to 3.6% from its 4.9% forecast in the August 2008 report. The forecast also indicates that manufacturing production growth will ease to 0.9% in 2009, well below the 4.4% predicted in the previous analysis.

In developing its forecast, MAPI utilizes data from national statistical agencies,assigning weighted average annual production indexes for each industry. The weights are determined by a country's sector value added in U.S. dollar terms.


Brazil's manufacturing production is expected to expand 4.9% in 2008, supported by strong activity in the first three quarters. The manufacturers of motor vehicles, other transport equipment, machinery and equipment, and non-metallic mineral products were the most important contributors to output growth in the country. Ironically, according to Fernando Sedano, Ph.D., Manufacturers Alliance/MAPI Economic Consultant and author of the analysis, these industries might become the major underperformers in the upcoming quarters. Mexico's manufacturing production is expected to increase just 0.9% in 2008 and Argentina's will likely decelerate to 6.2% in 2008 from a strong 9% in 2007.


According to the report, manufacturing production in Latin America will slow further next year. The forecast anticipates Brazil's output growth will weaken to 2.2% in 2009, influenced by sharp deceleration in the automotive, machinery and equipment, and other transport equipment businesses. Mexico is expected to expand by a meager 0.3%, and Argentina's manufacturers are expected to post slightly negative growth of 0.2%.
 
With the global economic downturn, Latin America will suffer from softer demand for its exports," Sedano said. "As commodity prices have scaled back over the past few months, the overall outlook for the region deteriorated notably, leading to capital outflows, currency depreciation, higher interest rates, and plunging consumer confidence, the best recipe for a sharp slowdown in purchases of big ticket items and manufacturing in general."
 
The report envisions growth in 14 of 16 industries in 2008 and growth in 13 of 16 industries in 2009. Three industries account for roughly 40% to 45% of the region's manufacturing and, therefore, are keys to the forecast: food and beverages; motor vehicles; and machinery and equipment.

Food and beverages production, the largest industry in the region, should expand by 3.3% in 2008 and by 1.9% in 2009. Growth in the automotive sector is forecast at 8.9% in 2008 and 1.1% in 2009. The machinery and equipment industry should increase production 7.5% in 2008 but turn to negative growth of 0.6% in 2009.

The report is available at www.mapi.net.