Latin America Outlook: Brazil's Strength Raises 2008 Forecast; Growth Will Decelerate in 2009

Report from Manufacturers Alliance/MAPI predicts 4.9 percent industrial growth in '08, 4.4 percent growth in '09 for region

Arlington, VA — August 27, 2008 — Latin American-based manufacturers look set to maintain momentum from a strong 2007 and first quarter 2008, with good prospects for continuing to increase output this year and in 2009, according to the "Manufacturers Alliance/MAPI Latin America Outlook: 2008-2009."

The biannual analysis examines the latest trends and provides a near-term forecast for 16 major industries. Based on the report, manufacturing production growth is projected to decelerate in 2009.

The report focuses on Latin America's three largest economies — Brazil, Argentina, and Mexico — as these countries are responsible for more than 80 percent of the region's manufacturing output.

MAPI raised its forecast for overall manufacturing output in Latin America in 2008 to 4.9 percent from its 3.8 percent forecast in the December 2007 report, slightly above the 4.6 percent expansion of 2007. The forecast also indicates that manufacturing production growth will ease to 4.4 percent in 2009, with deceleration in Brazil and Argentina, but slight improvement in Mexico.

Brazil Key for 2008

In developing its forecast, MAPI utilizes data from national statistical agencies, assigning weighted average annual production indexes for each industry. The weights are determined by a country's sector value added in U.S. dollar terms.

Brazil's manufacturing production is expected to expand 6.8 percent in 2008 and is a key element in MAPI's higher forecast for the current year. The manufacturers of motor vehicles, other transport equipment, machinery and equipment, and electrical machinery and apparatus — all expanding at double-digit rates — are the most important contributors to output growth in Brazil. Mexico is expected to increase a modest 2 percent and Argentina 7.5 percent in 2008, a deceleration from 9 percent in 2007. The outlook is cautiously optimistic as well.

"For 2009, we see all industries analyzed in our report showing gains, although we expect a moderation of overall industrial growth," said Fernando Sedano, Manufacturers Alliance/MAPI economic consultant and author of the analysis. "Rising inflation, coupled with currency appreciation, will slow Brazilian-based manufacturers; higher interest rates and weak U.S. demand will put a ceiling on Mexico's manufacturing activity; and Argentina's rising costs — among other macroeconomic concerns — will likely curb the strong expansion of the past five years."

Automotive Key Growth Driver

The report envisions growth in 14 of 16 industries in 2008 and growth in all 16 industries in 2009. Three industries — food and beverages; motor vehicles; and machinery and equipment — account for roughly 40 percent to 45 percent of the region's manufacturing and, therefore, are keys to the forecast.

Food and beverages production, the largest industry in the region, should expand 4.5 percent in 2008 and 4.1 percent in 2009. Growth in the automotive sector is forecast at 10 percent in 2008 and 7.6 percent in 2009. The machinery and equipment industry should increase production 11 percent in 2008 and 9.7 percent in 2009.

According to the report, the most significant growth drivers in the region are the automotive, other transport equipment, and the machinery and equipment industries. Suppliers to these sectors, such as manufacturers of basic metals and fabricated metal products are expanding output to keep up with the rising demand.