Brazil and Argentina have exceeded pre-crisis manufacturing production levels and are set to post record highs, according to the Manufacturers Alliance/MAPI Latin America Manufacturing Outlook. Mexico will contribute, but to a lesser extent.
MAPI forecasts that overall manufacturing output in Latin America will grow 8.6% in 2010, a slight increase from 8.3% growth forecast in its August 2010 report. Manufacturing production is expected to show 4.2% growth in 2011, a deceleration but also higher than the 3.7% growth predicted in the previous forecast.
The manufacturing upturn is a result of sizeable improvement in general economic conditions. The region is showing a sharp V-shaped recovery from last years recession, although the strength of the recovery is uneven across countries, according to the report.
In Brazil, economic growth is underpinned by a vigorous internal demand and by the elevated price of its exports. Similarly, Argentinas economy also benefits from favorable terms of trade, a vibrant domestic market, and strong demand from Brazil. Mexicos export-linked manufacturers continue to see advantages from a rebound in U.S. activity via market share gains but its domestic demand remains anemic despite the ongoing U.S.-driven manufacturing upturn. The strength of the U.S. cycle and the future performance of domestic demand remain keys to Mexico's manufacturing outlook.
The forecast for Latin America predicts manufacturing advancing to record-high levels this year, expanding output by 8.6% in 2010, the largest gain in at least two decades. The previous high was 6.9%t in 2004. Manufacturing production will decelerate to a more sustainable 4.2% in 2011.
The manufacturing sectors most severely hit by last years global economic crisis continue as the growth engines," said Fernando Sedano, Ph.D., MAPI Economic Consultant. "The automotive sector shines, pushed by external demand in Mexico, a rising domestic market in Brazil, and rapidly growing exports and a solid domestic market in Argentina. Gains in the automotive sector have rapidly filtered through its major supplying industries such as basic metals, fabricated metals, rubber and plastics, machinery and equipment, and electronic equipment, among others."
Three industriesfood and beverages; motor vehicles; and machinery and equipmentaccount for roughly 40%-45% of the regions manufacturing and, therefore, are most important to the forecast. Food and beverages production, the largest industry in the region and one of the most stable, should grow by 3.8% in 2010 and rise by 3.1% in 2011. The automotive sector is forecast to improve by 30.9% in 2010 and further grow by 8% in 2011. The machinery and equipment industry should increase production by 22.2% in 2010 and by 6.8% in 2011.