Mexico's factories continue to expand and the country is expected to be the manufacturing growth leader in Latin America through 2016, according to a report from the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation.

The Latin America Manufacturing Outlook, a report 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 decline 0.9 percent in 2015 and increase 1.9 percent in 2016. The latter is a modest improvement from 1.8 percent growth anticipated in the foundation's December 2014 report.

"The regional picture masks sizable differences across countries," Sedano said. "There is a deeper than expected recession in Brazil that is offsetting the solid performance of Mexican factories. Argentina's manufacturers are also in recession, but it is milder than Brazil's."

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 industry (48.7 percent of the MAPI Foundation's regional index) saw its output decrease by 8.4 percent year over year between January and April 2015, including an alarming 21.3 percent decline in motor vehicles production, the sector at the heart of the industrial recession.

The MAPI Foundation forecasts that Brazil will see a 3.8 percent manufacturing production decrease in 2015, down from 1.6 percent growth anticipated in the previous report. Sedano predicts a timid rebound of 0.7 percent growth in 2016, including some improvement in the carmaking sector that will barely push most intermediate industries out of recession.

Conversely, the automotive sector remained the growth engine in Mexico, expanding output by 11.1 percent in the January-April year-over-year period. Its manufacturing output (38.7 percent of the index) increased by 3.2 percent in that period, with the automotive sector, fabricated metal plants, and rubber and plastics producers showing above-average output gains.

The expectations of stronger manufacturing growth in the U.S. next year are positively affecting Mexican forecasts. Sedano anticipates 2.8 percent expansion in 2015 and a 3.4 percent advance in 2016. The December 2014 forecast was for growth of 2.8 percent in 2015.

Argentina's manufacturing prospects (12.6 percent of the index) will remain stagnant. Brazil's auto problems are cascading into Argentina, as carmakers there ship 60 percent of their production to Brazil. Muted domestic demand is also a problem. The MAPI Foundation forecasts a contraction of 0.9 percent in 2015 and a weak 1.8 percent expansion in 2016. The December 2014 report anticipated a contraction of 0.7 percent in 2015.

Four of the 14 Latin American industries covered in the report are expected to grow in 2015 but 12 should advance, albeit marginally, in 2016.

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 and one of the most stable – should increase 1.3 percent in 2015 and 2.5 percent in 2016. The automotive sector is forecast to increase production a timid 0.5 percent this year and 4.1 percent next year. Machinery and equipment is forecast to see a decrease of 3.6 percent in 2015 before a 1.6 percent advance in 2016.