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Production among Mercosur-based manufacturers is set to achieve record high levels this year and next, motivated by a dynamic domestic market which in turn benefits from elevated terms-of-trade (the ratio of export prices to import prices), to a recent report from MAPI/Manufactuters Alliance. The Mercosur region includes Argentina, Brazil, Paraguay and Uruguay.
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Although MAPI's econometric model for the region suggests a slowdown in activity, expected growth for 2011 is still close to the 5 percent mark, according to Fernando Sedano, the report's author and a consultant for MAPI. Beyond that time horizon, the outlook appears promising in the medium and even in the longer term.
Absent any major policy slippages, higher credit penetration and increased employment – a consequence of relatively improved macroeconomic policies – should continue stimulating the domestic demand of durable goods.
In addition, events such as the 2014 Soccer World Cup and the 2016 Olympics, to be held in Brazil, will trigger large scale infrastructure projects that will create sizable demand from a number of manufacturing industries, including Argentine factories. In the longer term, continued population growth and demographic shifts in China and India likely will contribute to higher demand for food production and raw materials.
The motor vehicle and parts manufacturing and the manufacture of machinery and equipment sectors are the two fastest growing sectors currently facing rising capacity constraints and, given their demand fundamentals, are poised for growth in the medium and longer term.
Two other sectors – food and beverages and chemicals and chemical products – also offer investment opportunities for U.S. manufacturers. Southern Brazil and Argentina are among the most efficient food-producing regions in the world. Advanced technologies applied to the most fertile lands have historically made agriculture the most productive sector in the economy.
"Our view is that despite bureaucracy and the fact that the region is not exempt from a number of business-hindering factors, structural favorable features in the world economy positively affect the manufacturing outlook in Brazil and Argentina," Sedano writes. "We are confident that the Mercosur region will continue growing in the medium and longer term, and for those U.S. manufacturers which choose to adjust to a different business environment, a number of profitable opportunities abound."