MAPI Foundation Latin America Manufacturing Outlook: Mexico the Leader
Mexican factories continue to remain the manufacturing growth leader in Latin America as Brazil and Argentina face declines that sour the outlook in the region, according to a report from the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation.
The Latin America Manufacturing Outlook is a semiannual analysis that examines the latest trends and provides a near-term forecast for 14 major industries.
The report, authored by Fernando Sedano, Ph.D., MAPI Foundation economic consultant, focuses on Latin America’s three largest economies—Brazil, Argentina, and Mexico—as these countries are responsible for more than 80% of the manufacturing output in the region.
Sedano forecasts that overall manufacturing output in Latin America will decline 0.1% in 2014 and increase a modest 1.8% in 2015. The former was revised downward from 2% growth anticipated in the foundation's July 2014 report while the latter is down from 2.1%.
“The export-oriented carmaking industry has been the growth engine in Mexico and there is now strong evidence that expansion across the industrial supply chain will occur in 2015,” Sedano said. “Brazil's economy is in stagflation mode—a mix of recession and inflation. Manufacturing activity decreased 6% year over year during the last six months and business and consumer confidence plummeted. Similarly, Argentina's manufacturing weakness is explained by a sharp retreat in car production, as domestic sales and exports to Brazil continue to decline. Argentina's economy is also in stagflation mode.”
In developing his forecast, Sedano 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 a proprietary econometric model.
Brazil’s manufacturing industry (48.7% of the MAPI Foundation's regional index) stopped growing four years ago and the country is at an economic crossroads. The government will need to make tough policy decisions to take the economy out of a slump, lower inflation, and address the deteriorating fiscal picture. With business sentiment at its lowest levels in a decade, it is not surprising to see plunging demand for durable industrial and capital goods.
The MAPI Foundation forecasts that Brazil will see a 1.8% manufacturing production decrease in 2014, down from 1.6% growth anticipated in the previous report, and 1.6% growth in 2015, down from 2.2% in the July forecast.
Mexico seems to be in far better shape. Its manufacturing output (38.7% of the index) increased by a relatively strong 3.4% in the first nine months of 2014, with the automotive sector, basic metals factories, and fabricated metal plants leading the way.
The encouraging outlook for manufacturing in the United States is driving up confidence among Mexico's manufacturing leaders. Sedano anticipates 2.9% expansion in 2014 and a 3.0% advance in 2015. The July 2014 forecast was for growth of 3.2% in 2014 and 2.8% in 2015.
Argentina’s manufacturing prospects (12.6% of the index) are troublesome. After reaching record-high car production in 2013, output fell an alarming 21.6% in the first 10 months of this year and tighter controls on imports are shaping numerous other industries. Sedano forecasts contractions of 2.4% in 2014 and 0.7% in 2015 compared with the previous forecast of 0.7% and 0.5% declines, respectively.
Six of the 14 Latin American industries covered in the report are expected to grow in 2014, with one remaining flat; 12 should advance in 2015.
Three industries—food and beverages, motor vehicles, and machinery and equipment—account for roughly 45% 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 grow by 1.8% in 2014 and 3.3% in 2015. The automotive sector is forecast to decline 1.9% this year and grow 3.2% next year. Machinery and equipment is forecast to see a decrease of 2.8% in 2014 before a 1.8% advance in 2015.
 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).