While there will be some deceleration in production growth, prospects for Latin America manufacturing remain solid through 2008, according to the Manufacturers Alliance/MAPI Latin America Outlook report, released last week.
The report focuses on Latin America's three largest economies, Brazil, Argentina, and Mexico, as these countries are responsible for more than 80% of the region's manufacturing output. Manufacturing industrial production in Latin America expanded at a 4.3% annual rate in 2006, but growth is expected to moderate to 3.9% in 2007 and to 3.8% in 2008.
Stronger growth in Brazil and an unabated Argentine expansion offset the slowdown in Mexican activity in the first half of 2007. Brazil's growth has been fueled by improved credit conditions, rising internal demand, and strong export activity that remains resilient in the face of continued currency appreciation. In addition to a weak peso policy, the unrelenting growth of domestic demand is helping Argentina, says the report.
Mexico, however, remains tightly linked to U.S. producers and therefore the slowdown seems inevitable. The forecast predicts a somewhat more balanced scenario among the countries in 2008, although prospects will continue to remain brighter for Brazil and Argentina. "This is primarily due to strong, although decelerating at the margin, activity in Brazil, a slight rebound in Mexico, and a deceleration in Argentina's factory output growth," said Fernando Sedano, Ph.D., Manufacturers Alliance/MAPI economic consultant and author of the analysis. "The automotive and the machinery and equipment subsectors are expected to be the largest contributors to overall growth in 2008."
Food and beverages production, the largest industry in the region, should expand 4.1% in 2007 and 2008. Growth in the automotive sector is forecast at 6.3% in 2007 and 6.1% in 2008, as Brazil and Argentina reach record-high production levels. Mexico's automotive industry, which is suffering from muted U.S. demand, puts a ceiling on growth in the sector. The machinery and equipment industry should increase production 13.9% in 2007 and a solid 8.1% in 2008, stimulated by strong activity in Brazil.
The fastest growing sectors are office, accounting and computing machinery, and the non-auto transport equipment, which includes the production, assembly, and repair of ships, boats, railroad equipment, aircraft and other equipment such as motorcycles or bicycles. Brazilian manufacturers are the stellar performers in both industries.
