MAPI Latin America Manufacturing Outlook: Gains in Motor Vehicles Will Invigorate Growth in 2014
A robust motor vehicle production sector and its supplying industries will provide momentum for Latin American manufacturing in 2014, according to a new report.
The Manufacturers Alliance for Productivity and Innovation’s Latin America Manufacturing Outlook is a semiannual analysis that examines the latest trends and provides a near-term forecast for 16 major industries.
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 2.0 percent in 2013 when final data are 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 from the upcoming World Cup. Sedano believes the event will increase demand for Brazil’s manufactured goods, especially in the food and beverages sector, which was weak in 2013. Demand should wane in the second half of 2014. Brazil’s carmakers 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 U.S. manufacturing output. Stimulated by ongoing momentum in the auto industry, recent data hint that Mexico’s long-awaited recovery is starting to gain some traction. Key leading indicators suggest that manufacturing production growth will continue to accelerate, 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, carmakers benefited from strong demand from Brazil and a solid domestic market, the latter 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 in 2013 but only 0.6 percent growth in 2014.
All 16 industries reviewed are expected to grow in 2013 and 15 should advance in 2014, with only medical, precision, and optical instruments showing a decline. Three industries—food and beverages, motor vehicles, and machinery and equipment—account for roughly 45 percent of the region’s manufacturing and are therefore the 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 in 2013 and 9.7 percent in 2014. Machinery and equipment is forecast to see growth of 4.9 percent in 2013 and 5.1 percent in 2014.
 All data are from the Mexican National Institute of Statistics, Geography, and Informatics (INEGI); the Brazilian Institute of Geography and Statistics (IBGE); and Argentina’s National Institute of Statistics and Census (INDEC).