Latin America Outlook: Brazil, Argentina in Major Slowdown; Mexico Shows Resiliency

Brazil and Argentina are both suffering the consequences of diminishing competitiveness in the industrial sector and lower demand for exports in general, according to a new report by The Manufacturers Alliance for Productivity and Innovation (MAPI). Mexico, though, is benefiting from a strong, resilient domestic consumer, coupled with robust demand for manufactured exports.

The new report 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.

MAPI forecasts that overall manufacturing output in Latin America will grow 3.1% in 2012, a downward revision from 4.4% growth in the December 2011 report. Output is anticipated to increase by 4% in 2013.

Brazil's manufacturing activity stopped growing a year ago and has been contracting during the past six months. The ongoing manufacturing recession will be followed by a moderate recovery driven by government-induced incentives that will stimulate demand in the second half of 2012.

Mexico's manufacturers continue growing on the heels of strong exports to the U.S. and a resilient domestic market. Growth is originating in the automotive and machinery and equipment sectors and is filtering through their supplying industries. MAPI expects that the ongoing solid performance of Mexico's manufacturing will continue in the next few quarters, as all leading indicators are at levels associated with an expansion.

Argentina's manufacturing is decelerating considerably, however, as protectionist measures affect supply chains and as the authorities’ interventionist stance intensifies, leading to a negative confidence shock.

"Our outlook for 2012 in this report is tempered as the result of an ongoing recession in Brazilian factories and a major slowdown in Argentina," Fernando Sedano, Ph.D., MAPI economic consultant,Sedano said. "Manufacturing activity in these two countries is suffering from inflation-adjusted exchange rate appreciations that are hurting competitiveness. On the contrary, Mexico’s manufacturers are in relatively better shape."

The report sees growth in 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. Food and beverages production, the largest industry in the region and one of the most stable, should grow by 4.3% in 2012 and by 3.5% in 2013. The automotive sector is forecast to improve by 2.9% in 2012 and accelerate to 6.4% in 2012. Machinery and equipment is forecast to see 8.8% growth in 2012 and an 8% advance in 2013.