Latin America Manufacturing Output to Grow 3.1% in 2014 - Modern Distribution Management

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Latin America Manufacturing Output to Grow 3.1% in 2014

MAPI: Intermediate industries will have to expand to meet growing demand from auto industry.

A robust motor vehicle production sector and its supplying industries will provide momentum for Latin American manufacturing in 2014, according to the Latin America Manufacturing Outlook, a semiannual analysis from the Manufacturers Alliance for Productivity and Innovation.

The report, authored by Fernando Sedano, Ph.D., 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 2013 when final data is tabulated and advance by 3.1 percent in 2014.

“The manufacturing growth picture expected in Latin America is clearly a consequence of the improved backdrop among intermediate industries, which will have to expand production to satisfy the projected strong demand from auto plants,” Sedano said. “Conditions are set for faster manufacturing growth in 2014, although the expansion will be moderate. Manufacturing companies in Brazil and Mexico will lead the growth tables but Argentina’s factories will likely remain flat.”

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) should get a boost in the first half of 2014 due to being the host country for soccer’s World Cup. Sedano believes it will increase demand for Brazil’s manufactured goods, especially in the food and beverages sector where it was weak in 2013, before waning in the second half of 2014. In addition, Brazil’s car makers will continue to drive growth among key intermediate industries. MAPI forecasts Brazil will see 2.9 percent manufacturing growth in 2013 and 3.9 percent growth in 2014.

Mexico’s manufacturers (38.7 percent of the index) gradually improved after a rough first quarter in 2013, mirroring the upturn in the U.S. manufacturing output. Stimulated by ongoing momentum in the auto industry, recent data suggest that Mexico’s long-awaited recovery is starting to gain some traction. Key leading indicators suggest that manufacturing production growth will continue to accelerate going forward, with motor vehicle plants driving a broader-based expansion. MAPI anticipates 1.7 percent manufacturing growth in 2013 and a solid 3.1 percent gain in 2014.

Argentina’s manufacturing prospects (12.6 percent of the index) are more subdued. In 2013 car makers benefitted from strong demand from Brazil and a solid domestic market, the latter as a result of government policies that stimulated consumer spending at the expense of savings and investment, a combination that cannot be sustained over time. MAPI anticipates 2.1 percent growth this year but only 0.6 percent growth in 2014.

All 16 industries reviewed are expected to grow in 2013 and 15 of 16 should advance in 2014, with only medical, precision and optical instruments showing a decline, by 3.2 percent. 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 1.1 percent in 2013 and 3.7 percent in 2014. The automotive sector is forecast to improve by 8.9 percent this year and 9.7 percent next year. Machinery and equipment is forecast to see growth of 4.9 percent in 2013 and 5.1 percent in 2014.

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