Manufacturing in Mexico in 2014

2014 Could Be Banner Year For MFI and Other Mexican Manufacturers

 

Experts Forecast Steep Rise In Production In 2014

“For 2014, our model points to a sizable pickup in Mexico’s manufacturing sector; we now forecast growth of 3.9 percent.” Manufacturers Alliance for Productivity and Innovation (MAPI)
The news about Mexico’s manufacturing industry keeps improving — and the reasons are even better news for MFI International and other companies with manufacturing facilities in Mexico, particularly U.S. manufacturers that have business deals with Mexican contract manufacturers.
The positive outlook for Mexico’s manufacturing industry could also spur U.S. manufacturers that don’t have business in Mexico to move some of their manufacturing operations to the United States’ southern neighbor. Basically, the forecast for Mexican manufacturing in 2014 could prove that moving manufacturing operations to Mexico is a sound business strategy.

The numbers are very encouraging. MAPI forecast 2.7 percent growth in Mexican manufacturing in 2014 in its July, 24, 2013, report but it increased its growth forecast to 3.9 percent in its Dec. 16, 2013 report because of a steep rise in the forecast for motor vehicle production from 5.8 percent to 13.4 percent. Sizable increases in auto manufacturing are more important than sizable increases in manufacturing of most other products because the demand for many products increases when the production — and sales — of automobiles increases.

“Motor vehicle manufacturers will lead the growth tables, generating positive spillover effects in numerous intermediate industries, notably nonmetallic minerals, basic metals, and fabricated metals,” is how MAPI’s “Latin America Manufacturing Outlook, December 2013” report describes how automobile production impacts other industries.

The dramatic increase in the forecast for automobile production is the result of several auto investments in Mexico developed in recent months.  A Nov. 18, 2013, article in The New York Times reported that Audi, Chrysler, Ford, General Motors, Honda, Mazda, Nissan, and Volkswagen were all expanding their Mexican operations.

MFI manufactures products in numerous industries including specialty seating for motor vehicles and aircraft, consumer goods, safety and technical products, medical devices, furniture, mattress components, and specialty apparel.

“MFI is very optimistic about 2014,” said MFI President Lawrence Wollschlager. “We expect that positive news about large companies choosing Mexico will prove how beneficial, and safe the Mexican manufacturing climate is and spur many of our current medium- and large-sized clients to expand their operations in the near future”.

The 2014 forecasts for automobile and overall manufacturing are also bolstered by several other factors that could also have a significant impact on long-term manufacturing forecasts.

One factor is the North American Free-Trade Agreement, which is better known as NAFTA. Trade between the 1994 pact’s signatories — Mexico, the United States, and Canada — “got off to a flying start” for a few years after 1994 but stalled because a 2001 decision by the World Trade Organization to admit China spurred many companies to move their manufacturing facilities from Mexico to China, according to a Jan. 4, 2014, article in The Economist.

In the last few years, though, China’s cost-of-labor advantage has dissipated and Mexico is now at advantage. This means that there will be more trade between the U.S. and Mexico.
A second related factor is the American economy. MAPI’s July report attributes Mexico’s weak manufacturing output in early, 2013 (down 1.6 percent during the first three months) in large part to weak U.S. demand, attributes the rebound in Mexican manufacturing later in the year (final 2013 forecast was a 1.7 percent increase) to a stronger U.S. economic performance, and forecasts that U.S. manufacturing in 2014 will be significantly better than it was in 2013.

“Leading indicators in the U.S. suggest positive momentum for Mexico’s manufacturers,“ the report says. “MAPI’s U.S. Industrial Outlook—a key input for our forecast for Mexican factories—predicts solid 3.1 percent manufacturing output growth in 2014.”

In short, the NAFTA pact and the anticipated strength of the U.S. economy should have a win-win impact on Mexican manufacturing in 2014. In addition, the MAPI report says that the Mexican government has recently enacted changes that have made the Mexican economy stronger and cited the government’s energy reform as a change that “will open up numerous possibilities for foreign companies, including U.S. manufacturers supplying the oil sector.”