After weathering a difficult 2012, the outlook for Latin American manufacturing is significantly brighter for 2013, according to a new report by The Manufacturers Alliance for Productivity and Innovation (MAPI).

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% of the manufacturing output in the region.

The group forecasts that overall manufacturing output in Latin America will grow by only 0.5% in 2012, dragged down by a manufacturing recession in Brazil and a sudden stop in output growth in Argentina.

Prospects for 2013, however, are much more optimistic, with expectations of 4% growth in the region.

“Brazil’s manufacturing output should rebound in 2013 because of a host of tax breaks intended to spur demand, deplete inventory, and drive production,” Sedano said.“Mexico’s manufacturing sector will continue to expand, although at a more modest pace, and Argentina’s factories will benefit from stronger demand from Brazil.”

Brazil’s manufacturing activity (48.7% of MAPI’s regional index) stopped growing two years ago as elevated inventory levels had to be depleted and a lack of demand caught factories off guard. Recent moves by Brazilian authorities, including reducing the tax burden on companies, a payroll tax cut, and infrastructure investments, point to a rebound in activity in 2013.

Brazil manufacturing output is expected to expand a strong 5.6%.

Mexico’s manufacturers (38.7% of the index) rode a solid performance of the auto sector to anticipated 3.7% final output growth in 2012. There are increasing signs, though, that activity among Mexican factories is losing some steam as domestic demand and exports wane. More moderate growth of 3% is expected for 2013.

Argentina’s manufacturing (12.6% of the index) appears to have stabilized after a hard landing through much of 2012, due in part to government-imposed controls that hit the capital and intermediate goods industries. The outlook remains cautious because of limited energy resources and inflation. Still, MAPI forecasts 3.5% expansion in 2013 pushed by a rebound in Brazilian demand and a switch from Argentine consumers buying dollars for saving purposes to acquiring goods to hedge against elevated inflation.

The report sees growth in all 16 industries in 2013. 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 in the region and one of the most stable—should grow by 3.3% in 2013. The automotive sector is forecast to improve by 8.3% this year, and machinery and equipment is forecast to see a 7.3% advance in 2013.