Latin America Manufacturing Out of Sync
The MAPI Foundation’s manufacturing production index for Latin America is forecast to decline a slight 0.1% in 2014; however, I warn our readers to focus on the country-specific situations and pay little attention to our overall regional estimates, as the major economies in Latin America and their manufacturing industries show completely opposite realities. In fact, the poor performance of our regional index is explained by recessions in Brazil and Argentina that have offset the good performance of Mexican factories.
In Mexico, the export-oriented carmaking industry remains as the growth engine, although there is now strong evidence of broader-based manufacturing growth. Mexican factories will expand output 2.9% this year and I estimate that this broad-based expansion across Mexico’s industrial supply chain will continue in 2015. In Brazil, plummeting motor vehicles manufacturing dragged down growth across the country’s industrial complex, with few exceptions. Our model estimates a 1.8% contraction across Brazil's factories for this year. Similarly, Argentina’s manufacturing weakness is explained by a sharp retreat in car production, as domestic sales and exports to Brazil continue to decline.
The MAPI Foundation’s Latin America manufacturing index is expected to rise a modest 1.8% in 2015. We remain confident that Mexico will remain the manufacturing growth leader in the region, expanding output by a solid 3% next year. Demand from U.S. factories will fuel manufacturing growth in Mexico, although homegrown political factors will put a ceiling on Mexico’s expansion. We forecast a weak 1.6% manufacturing expansion in Brazil for next year, although the new economic team in Brazil may implement policies that would lead to slower than expected growth in the short term. Our model points to a 0.7% manufacturing recession in Argentina in 2015.
I encourage you to stay tuned as numerous factors, ranging from political to purely economic elements, may affect the manufacturing outlook in the region.