BMI expects to see a broad slowdown in vehicle production in Latin America in 2014, with many countries in the region registering a moderation in manufacturing growth from 2013 levels. We expect many markets to register increases over the year, but this is generally at a lower level than growth seen in 2013.
The majority of output in many countries is either for the domestic market or elsewhere in Latin America; the broad slowdown in sales growth we expect to see in the region over the year ( see 'Regional Sales To Slow In 2014', November 19) is a key driver of this output downtrend.
There are some notable exceptions to this trend, however, as some output is exported to outside the region. No domestic manufacturing currently exists in Chile or Peru.
Argentina Imbalances Starting To Unwind
Vehicle production in Argentina has been buoyed in 2013 by growth in domestic sales and exports, although we expect this to moderate somewhat over the remainder of the year. We forecast an 8% production increase for the full year.
We have long maintained that this surge in sales and production over the year has been predicated on unsustainable currency dynamics, and this could unwind following a devaluation in the unit ( see 'BMI View Playing Out As Exports Dip', November 6). Indeed, we expect both sales and export volumes to moderate heavily from 2013 levels in 2014, and this has informed our forecast for a 0.9% increase in production volumes.
Brazil Slowdown Expected
In Brazil, production for the domestic market has constituted a significant percentage of total output volumes over the year to date, meaning domestic sales largely determine the pattern of manufacturing.
BMI forecasts vehicle production to increase 4.0% in 2014, a significant slowdown from the growth rates seen in recent years, due to an expected slowdown in the domestic sales market. However, we expect exports to play an increasingly important role in output growth, but volumes are likely to remain relatively small, so they will not be the primary driver of production. Further, the y-o-y production growth in 2014, at least in H114, is likely to be relatively modest due to strong base effects from the first half of 2013.
In contrast to much of the rest of the region, we expect to see an increase in vehicle manufacturing growth in Colombia in 2014, following sharp declines in 2013. This comes on the back of improving domestic sales as the economy continues to grow.
In 2013, we forecast a 13% drop in vehicle output as the domestic market contracts. In 2014, however, we expect to see a resurgence in sales as the economy picks up further, and this has informed our forecast for a 4.5% increase in vehicle output.
Mexico Remains Strong On North America Trade
Unlike much of the Latin American region, the majority of Mexican vehicle manufacturing is for export. Much of this is to North America, although a significant proportion of output is exported to elsewhere in the Latin America region.
Indeed, vehicle manufacturing has remained strong in 2013 on the back of sustained export growth, in addition to a buoyant domestic demand story. In 2014, we expect to see a sustained pick up in output as production for export volumes remain high. This has informed our forecast for 6.7% growth in vehicle manufacturing in 2014, an improvement on the 5.5% forecasted for 2013.
Venezuela Weakness To Continue
BMI remains bearish on vehicle production in Venezuela, as the government continues to intervene in the economy, further restricting access to foreign currency and implementing import restrictions on vehicle components. Furthermore, the ongoing weakness in the currency will serve to make supplier imports more expensive, exacerbating shortages of components.
We forecast a 25% decline for 2013. In 2014, we forecast a 5.5% drop in autos production, as the weak macro environment continues to hinder growth in the sector, with some relief coming from the market bottoming-out after sustained declines and low base effects from H113. Downside risks to these forecasts remain prevalent, however, as the government continues to intervene in the economy ( see 'Maduro's Decree Powers More Bad News For Private Sector', November 20).
|2013 (f)||2014 (f)|
|Argentina||Vehicle production, units||825,390||832,488|
|Growth rate, % chg y-o-y||8.0||0.9|
|Brazil||Vehicle production, units||3,735,286||3,885,361|
|Growth rate, % chg y-o-y||11.7||4.0|
|Colombia||Vehicle production, units||119,715||125,123|
|Growth rate, % chg y-o-y||-13.0||4.5|
|Mexico||Vehicle production, units||3,167,013||3,378,787|
|Growth rate, % chg y-o-y||5.5||6.7|
|Venezuela||Vehicle production, units||78,042||73,769|
|Growth rate, % chg y-o-y||-25.0||-5.5|
|Source: BMI forecasts|