Economic Expansion in Latin America Slows

Latin America's largest economies are still expanding, although the rate of growth is slowing across all countries, according to the Manufacturers Alliance/MAPI Latin America Manufacturing Outlook, a biannual 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 &ndashl Brazil, Argentina, and Mexico – as these countries are responsible for more than 80 percent of the manufacturing output in the region. It concludes that softer activity in Brazil, which is a consequence of structural barriers to growth and a diminishing competitiveness, will limit the pace of the expansion.

MAPI forecasts that overall manufacturing output in Latin America will grow 4.2 percent in 2011, the same as predicted in its December 2010 report, and will show 4.1 percent growth in 2012. Both are a sizeable deceleration relative to the 9 percent expansion in 2010.

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, using MAPI's proprietary econometric model.

The most significant slowdown is being seen in Brazil's factories, as strong demand is being increasingly satisfied with imports rather than domestically produced manufactured goods. The ever-stronger currency, the real, and a scarcity of qualified personnel are limiting growth in Brazil.

Mexico's export-linked manufacturers continue growing, bolstered by solid demand from the U.S. and from recovering domestic consumption. The automotive sector continues to explain most of the growth in Mexico.

Argentina's manufacturing industry is benefiting from a still rising demand in Brazil, particularly in the motor vehicles industry, and from an ongoing domestic consumption boom of durable goods, motivated by higher inflation-adjusted incomes.

"While Latin America's manufacturing growth may be slowing, the outlook still points to further gains in 2011 and 2012," Sedano said. "The automotive sector, which accounts for a large share of Latin America's manufacturing, remains the growth engine, although it has decelerated since last year. Production is expanding across countries, but a more modest pace of growth is rapidly darkening the performance of a broad number of supplying industries."

The report sees growth in all 16 industries in 2011 and in 2012. Three industries – food and beverages; motor vehicles; and machinery and equipment – account for roughly 45 percent of the region's manufacturing and, therefore, are most important to the forecast.

Food and beverages production, the largest industry in the region and one of the most stable, should grow by 4.2 percent in 2011 and by 3.8 percent in 2011. The automotive sector is forecast to improve by 10.2 percent in 2011 and by 6.2 percent in 2011. The machinery and equipment industry should increase production by 8.8 percent in 2011 and by 6.3 percent in 2012.