Latin America’s largest economies will experience lower growth than previously forecast in 2011, due largely to a soft patch in Brazilian factories’ output, but the region should see moderate growth in 2012, according to the Manufacturers Alliance for Productivity and Innovation (MAPI) Latin America Manufacturing Outlook, a semiannual analysis that examines the latest trends and provides a near-term forecast for 16 major industries.

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The report, authored by Fernando Sedano, Ph.D., MAPI Economic Consultant, focuses on Latin America’s three largest economies – Brazil, Argentina, and Mexico – as these countries are responsible for more than 80 percent of the manufacturing output in the region. Brazil’s economy has posted virtually no growth in the last few months and is slowing considerably as a result of the challenging global environment.

MAPI forecasts that overall manufacturing output in Latin America will grow 2.5 percent in 2011, lower than the 4.2 percent predicted in its July 2011 report, and will show 4.4 percent growth in 2012. Both are a sizable deceleration relative to the 9 percent expansion in 2010.

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 value-added in U.S. dollar terms in each sector, using MAPI’s proprietary econometric model.

A sudden slowdown among car makers in Brazil is translating into a dwindling demand for capital equipment and for intermediate products or inputs, leading to an across-the-board output deceleration across all sectors of activity.

Mexico’s export-linked manufacturers continue growing on the heels of a resilient U.S. demand and a healthier domestic consumption. However, Sedano notes that the latest survey on manufacturers’ expectations showed downward trends in all indexes – production, domestic demand, exports, and investment – suggesting slower growth in the next few months.

Despite the strong growth shown so far this year, Sedano suspects that a major slowdown is well under way and remains cautious about the outlook for Argentine-based manufacturers given the existence of a number of growth-limiting factors, predominantly the ever-rising labor costs and a limited supply of energy.

“We expect the pace of growth among Latin American manufacturers to regain some strength in 2012, and our forecast is for a 4.4 percent gain,” Sedano said. “The most rapidly growing subsectors will be the other transport equipment (production, assembly, and repair of ships, boats, railroad equipment, aircraft, and other equipment such as motorcycles and bicycles); radio, television and communication equipment; and office, accounting, and computing machinery. However, motor vehicles, trailers, and semi-trailers – an important growth driver in a number of industries – will see its output growth decelerate considerably, from 11.2 percent in 2011 to 3.7 percent in 2012.”

The report sees growth in 12 of 16 industries in 2011 (one, chemicals and chemical products, will remain flat) and in all 16 industries in 2012. Three industries – food and beverages, motor vehicles, and machinery and equipment – account for roughly 45 percent of the region’s manufacturing and are therefore most important to the forecast.

Food and beverages production, the largest industry in the region and one of the most stable, should grow by 2.6 percent in 2011 and by 3.9 percent in 2012. The automotive sector is forecast to improve by 11.2 percent in 2011 but decelerate to 3.7 percent in 2012.