growing internal demand. Exports of vehicles in those two countries have also increased dramatically, as demand improves in Europe, Asia and other Latin American countries.
“Even Mexico has managed to stay in positive territory by exporting to new countries other than the U.S.,”Sedano says. According to the MAPI report, Mitsubishi, Volkswagen and General Motors each increased their manufacturing presence in Mexico in 2007 and 2008 to produce new products, which helped strengthen the state of Mexican manufacturing. Expansion in this sector is expected to be 7.6 percent in 2009 for the region.
Growth in the machinery and equipment industry is forecast at 11 percent for 2008 and 9.7 percent in 2009. The largest industry in the region, food and beverages production, is also expected to expand by 4.8 percent in 2008 and 4.1 percent in 2009.
The wood products segment continued its downward path in the first quarter of 2008, shrinking 3.5 percent compared with the prior year. Output in Brazil represents about 80 percent of total output for the region in this sector. To offset losses from the slow residential housing market in the U.S. that has driven demand downward, wood products manufacturers have found solid demand in European and Asian countries. That demand is expected to return the sector to growth in 2009.
Overall, the economies of Latin America are looking strong, Sedano says. A four-month farmers’strike in Argentina caused some concern in the second quarter but numbers have shown recovery in July. Although the problems that led to the strike have yet to be resolved, any future impact should be much less than has already been seen.
The region’s economy has also benefited from solid prices in the raw materials and natural resources market, according to Sedano. Though the commodities market falls outside the scope of the MAPI report, the market does have a clear impact manufacturing sectors.
Many of the countries not included in the manufacturing survey rely on raw materials and natural resources to support their economies. Global prices in the segment have been moderating but are not expected to face a sharp decline anytime soon.
Order Sedano’s report at www.mapi.net.An analysis of the three major markets in Latin America -Mexico, Brazil and Argentina -forecasts solid growth for manufacturing markets in the region for the remainder of 2008 and into 2009. The author of that analysis, based in the region, spoke with MDM about what sectors are driving the growth.
All sectors of manufacturing in Latin America will likely see some growth in 2009, but automotive manufacturing has had particular strength partly due to internal demand in Brazil and Argentina, says Fernando Sedano, author of the Manufacturers Alliance/MAPI Latin America Outlook 2008-2009.
Mexico, the third market included in the analysis, has seen slower growth because of its close economic ties to the U.S., but has begun to make up ground through exports to Europe and Asia. The three markets were chosen for analysis because they are responsible for more than 80 percent of manufacturing output in the region.
The economy in Brazil has just skyrocketed in recent years. That’s helping to drive the region’s numbers up,”Sedano says. “Interest rates -while still relatively high -have come down enough where people are starting to be able to buy things like cars that they couldn’t buy before.”
Based on the weighted survey, MAPI forecasts overall manufacturing output in Latin America will expand by 4.9 percent in 2008, slightly above the expansion seen in 2007. Brazil is expected to expand 6.8 percent in 2008. The size and scope of Brazil’s manufacturing industry is a key factor in the positive outlook for the region.
Mexico will increase output a modest 2 percent. Argentina, currently the smallest of the three economies, will continue to expand by 7.5 percent, down from the 9 percent growth it experienced in 2007.
The forecast also indicates that manufacturing production growth will ease to 4.4 percent in 2009, with deceleration in Brazil and Argentina, but slight improvement in Mexico. “The problem for Mexico is its tight relationship with the U.S.,”Sedano says. “If the U.S. goes down, Mexico will follow, although with a lag period. But it also means that when the U.S. recovers, Mexico will too.”
In developing the forecast, Sedano collected data on 16 manufacturing sectors from the national statistical agencies of each country, 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. Brazil carries a weight of 48.7 percent in the survey; Mexico holds 38.7 percent. Argentina’s manufacturing output makes up the remaining 12.6 percent.
“Because each country utilizes different data standards, it doesn’t make much sense to spend the time and effort to include data from countries not focused on manufacturing in the analysis,”Sedano says. “For example, Chile has a growing economy as well, but most of its industries are focused on service and raw materials. It doesn’t produce much manufacturing output.”
Barring any major shocks to the Latin American countries, 14 of the 16 segments are expected to experience growth for the remainder of 2008. In 2009, Sedano believes all 16 segments will be expanding, albeit it at a slower rate. “Rising inflation, coupled with currency appreciation, will slow Brazilian-based manufacturers; higher interest rates and weak U.S. demand will put a ceiling on Mexico’s manufacturing activity; and Argentina’s rising costs — among other macroeconomic concerns — will likely curb the strong expansion of the past five years,”Sedano said.
Three industries account for roughly 40 percent to 45 percent of the region’s manufacturing and, therefore, are keys to the forecast: food and beverages; motor vehicles; and machinery and equipment.
The automotive manufacturing sector is expected to grow by 10 percent for the region for 2008, primarily in Argentina and Brazil as the two countries expand to meet