Latin America to Grow 4.2% in This Year, 4.1% Next Year

Aug. 1, 2011
Large drop from 9% expansion in 2010

Latin America's largest economies are still expanding, although the rate of growth is slowing across all countries, according to the Manufacturers Alliance/MAPI. The report focuses on Latin Americas three largest economies -- Brazil, Argentina, and Mexico -- as these countries are responsible for more than 80% of the manufacturing output in the region. It concludes that softer activity in Brazil, which is a consequence of structural barriers to growth and a diminishing competitiveness, will limit the pace of the expansion.

MAPI forecasts that overall manufacturing output in Latin America will grow 4.2% in 2011, the same as predicted in its December 2010 report, and will show 4.1% growth in 2012. Both are a sizeable deceleration relative to the 9% expansion in 2010.

The most significant slowdown is being seen in Brazil's factories, as strong demand is being increasingly satisfied with imports rather than domestically produced manufactured goods. The ever-stronger currency, the real, and a scarcity of qualified personnel are limiting growth in Brazil.

Mexico's export-linked manufacturers continue growing, bolstered by solid demand from the U.S. and from recovering domestic consumption. The automotive sector continues to explain most of the growth in Mexico.

Argentina's manufacturing industry is benefiting from a still rising demand in Brazil, particularly in the motor vehicles industry, and from an ongoing domestic consumption boom of durable goods, motivated by higher inflation-adjusted incomes.

"While Latin America's manufacturing growth may be slowing, the outlook still points to further gains in 2011 and 2012," said by Fernando Sedano, Ph.D., MAPI economic consultant. "The automotive sector, which accounts for a large share of Latin America's manufacturing, remains the growth engine, although it has decelerated since last year. Production is expanding across countries, but a more modest pace of growth is rapidly darkening the performance of a broad number of supplying industries."

Three industries -- food and beverages; motor vehicles; and machinery and equipment -- account for roughly 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 4.2% in 2011 and by 3.8% in 2011. The automotive sector is forecast to improve by 10.2% in 2011 and by 6.2% in 2011. The machinery and equipment industry should increase production by 8.8% in 2011 and by 6.3% in 2012.

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