The 2020 Mid-Year Economic Update_long

Latin America Manufacturing Growth Led by Mexico

MAPI forecast calls for manufacturing gains of 2 percent in 2014, 2.1 percent in 2015.

Mexico’s factory growth, led by a strong showing in the motor vehicles sector, is a bright light for Latin America manufacturing otherwise hamstrung by ailing industrial performances in Brazil and Argentina, according to the Latin America Manufacturing Outlook, a semiannual report from the Manufacturers Alliance for Productivity and Innovation.

The report, authored by Fernando Sedano, 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.

MAPI forecasts that overall manufacturing output in Latin America will grow by 2 percent in 2014 and 2.1 percent in 2015. The former was revised downward from the 3.1 percent growth anticipated in MAPI’s December 2013 report.

“While the performance of the motor vehicles sector in Mexico has been outstanding—we anticipate a 10.1 percent increase in 2014 and 5 percent advancement in 2015—the country’s factory growth will become more broad-based,” Sedano said. “In contrast, there are ongoing recessions in manufacturing industries in Brazil and Argentina. Conditions are set for more regionally balanced growth in 2015. Activity across Brazil’s factories will pick up in pace, Mexico’s manufacturing growth will moderate slightly as carmakers reduce expansion rates to more sustainable levels and Argentina’s industry will remain a drag on overall growth.”

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 percent of MAPI’s regional index) failed to receive the expected economic boost from the recently concluded World Cup. Its economy is slowing and struggling to generate sustainable growth, particularly in manufacturing. Sedano expects Brazil’s automotive industry to recover some of its losses next year, however, generating positive spillover effects in intermediate industries.

MAPI forecasts Brazil will see 1.6 percent manufacturing growth in 2014, down from 3.9 percent in the previous report and 2.2 percent in 2015.

While Mexico’s industry growth (38.7 percent of the index) is centered on just a few sectors—autos, basic metals and electrical machinery and apparatus—Sedano expects improving growth across the industrial supply chain. MAPI anticipates 3.2 percent manufacturing growth in 2014 and 2.8 percent growth in 2015.

Argentina’s manufacturing prospects (12.6 percent of the index) seem stagnant. Unlike Mexico, Argentina encountered a major retreat in car production—previously an industrial leader—and uncertainty levels are rising regarding the overall macroeconomic outlook. MAPI forecasts a contraction of 0.7 percent this year and a further decline of 0.5 percent in 2015.

Thirteen of the 14 industries reviewed are expected to grow in 2014, with only coke, refined petroleum products and nuclear fuel declining; all 14 should advance in 2015.

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 1.5 percent in 2014 and 2.5 percent in 2015. The automotive sector is forecast to improve by 4 percent this year and 3.6 percent next year. Machinery and equipment is forecast to see growth of 0.9 percent in 2014 and 4 percent in 2015.

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