The report, authored by Fernando Sedano, Ph.D., MAPI Foundation economic consultant, 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.

Sedano forecasts that overall manufacturing output in Latin America will decline 0.9% in 2015 and increase 1.9% in 2016. The latter is a modest improvement from 1.8% growth anticipated in the foundation's December 2014 report.

"The regional picture masks sizable differences across countries," Sedano cautioned. "There is a deeper than expected recession in Brazil that is offsetting the solid performance of Mexican factories. Argentina's manufacturers are also in recession, but it is milder than Brazil's."

 Brazil

Brazil's manufacturing industry (48.7% of the MAPI Foundation's regional index) saw its output decrease by 8.4% year over year between January and April 2015, including a 21.3% decline in motor vehicles production, the sector at the heart of the industrial recession.

The MAPI Foundation forecasts that Brazil will see a 3.8% manufacturing production decrease in 2015, down from 1.6% growth anticipated in the previous report. Sedano predicts a timid rebound of 0.7% growth in 2016, including some improvement in the carmaking sector that will barely push most intermediate industries out of recession.

Conversely, the automotive sector remained the growth engine in Mexico, expanding output by 11.1% in the January-April year-over-year period. Its manufacturing output (38.7% of the index) increased by 3.2% in that period, with the automotive sector, fabricated metal plants, and rubber and plastics producers showing above-average output gains.

The expectations of stronger manufacturing growth in the U.S. next year are positively affecting Mexican forecasts. Sedano anticipates 2.8% expansion in 2015 and a 3.4% advance in 2016. The December 2014 forecast was for growth of 2.8% in 2015.

Argentina's manufacturing prospects (12.6% of the index) will remain stagnant. Brazil's auto problems are cascading into Argentina, as carmakers there ship 60% of their production to Brazil. Muted domestic demand is also a problem. The MAPI Foundation forecasts a contraction of 0.9% in 2015 and a weak 1.8% expansion in 2016. The December 2014 report anticipated a contraction of 0.7% in 2015.

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. Production of food and beverages—the largest industry and one of the most stable—should increase 1.3% in 2015 and 2.5% in 2016. The automotive sector is forecast to increase production a timid 0.5% this year and 4.1% next year. Machinery and equipment is forecast to see a decrease of 3.6% in 2015 before a 1.6% advance in 2016.

Source: Industry Week