Latin America Outlook: Strength in Brazil and Argentina Offsets Weakness in Mexico

Automotive, machinery and equipment industries are major growth drivers, Manufacturers Alliance/MAPI reports

Arlington, VA — December 18, 2007 — While there will be some deceleration in production growth, prospects for Latin America manufacturing remain solid through 2008, according to a new report from the Manufacturers Alliance/MAPI.

The alliance's new bi-annual "Latin America Outlook: 2007-2008" report examines the latest trends in, and provides a near-term forecast for, 16 major industries. 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.

Manufacturing industrial production in Latin America expanded at a 4.3 percent annual rate in 2006, but growth is expected to moderate to 3.9 percent in 2007 and to 3.8 percent in 2008, according to the report. Stronger growth in Brazil and an unabated Argentine expansion offset the slowdown in Mexican activity in the first half of 2007.

Brazil's growth has been fueled by improved credit conditions, rising internal demand and strong export activity that remains resilient in the face of continued currency appreciation. In addition to a weak peso policy, the unrelenting growth of domestic demand is helping Argentina. Mexico, however, remains tightly linked to U.S. producers, and therefore a slowdown seems inevitable.

2008 Outlook

The forecast predicts a somewhat more balanced scenario among the countries in 2008, although prospects will continue to remain brighter for Brazil and Argentina. "This is primarily due to strong, although decelerating at the margin, activity in Brazil, a slight rebound in Mexico, and a deceleration in Argentina's factory output growth, " said Fernando Sedano, Manufacturers Alliance/MAPI economic consultant and author of the analysis. "The automotive and the machinery and equipment sub-sectors are expected to be the largest contributors to overall growth in 2008."

The report envisions growth in 14 of 16 industries in 2007 and 15 of 16 industries in 2008, with one remaining flat. Three industries account for roughly 40 percent to 45 percent of the region's manufacturing and, therefore, are keys to the forecast: food and beverages; motor vehicles; and machinery and equipment.

Food and beverages production, the largest industry in the region, should expand 4.1 percent in 2007 and 2008. Growth in the automotive sector is forecast at 6.3 percent in 2007 and 6.1 percent in 2008, as Brazil and Argentina reach record-high production levels.

Mexico's automotive industry, which is suffering from muted U.S. demand, puts a ceiling on growth in the sector. The machinery and equipment industry should increase production 13.9 percent in 2007 and a solid 8.1 percent in 2008, stimulated by strong activity in Brazil.

The fastest-growing sectors are office, accounting and computing machinery, and the non-auto transport equipment, which includes the production, assembly and repair of ships, boats, railroad equipment, aircraft and other equipment such as motorcycles or bicycles. Brazilian manufacturers are the stellar performers in both industries.

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.