Jonathon Poskitt, Director, Global Sales Forecast
13 December 2018
13 December 2018
Global growth grinds to a halt
After eight consecutive years of Global Light Vehicle sales growth — starting in 2010, as recovery began post-Great Recession — it is becoming clearer that 2018 will not match the record 2017 result. Although this is disappointing news, it must be remembered that the strong run seen for much of this decade has transformed the market from 64 mn units in 2009 to circa 95 mn units today.
The main engine for growth over that time has been China, which has more than doubled in size during that time period, in the process ensuring it became, by some margin, the largest LV market in the world. Maybe then it is no surprise that, with that market struggling as we head towards the close of 2018, the prospects for global growth have fizzled away. The latest monthly result — November — saw China volumes fall by 14% year-on-year (YoY), as a number of headwinds have impacted the market. Although the market in late 2017 was inflated by the temporary tax cut, the YoY decline has been exacerbated by weakening consumer confidence, a slowing economy and consumers delaying purchases because the potential shift in timing of the State VI emissions standard. There had also been speculation that the government would launch new vehicle tax cuts, though it has confirmed this will not now happen. This may have led to some initial delay to purchasing.
“a number of markets have failed to live up to expectations this year”
It must be said though that the reason global sales are slowing is not just down to China: a number of markets have failed to live up to expectations this year. In Western Europe, aside from WLTP distortions generally in the region, the Italian market has disappointed as the economy teeters on the brink of recession. In Eastern Europe, Turkey’s sales have deteriorated sharply after a dramatic plunge in the lira and subsequent interest rate hike. Meanwhile, the Middle East continues to disappoint. US sanctions against Iran have dealt the country’s auto industry a major blow, while results for Saudi Arabia and UAE pale by comparison to previous years. The recent collapse in oil prices will only compound the issue for the region’s economy. In South America too, a major market, in this case Argentina, has been hit due to economic turmoil.
So, is it all doom-and-gloom for the auto sector? Well, beyond 2018 there are still reasons to be optimistic the market will surpass 100 mn units/year early next decade. China’s market potential remains large, and while economic growth continues to slow, this continues at fairly enviable levels by most standards. And with clarity from the government regarding tax cuts and the new emission legislation, the hold-off on purchasing should also unwind. Elsewhere, the other BRICs markets are either on the path to recovery (Brazil, Russia) or on course for new highs (India). This outlook is not without its risks though, which, as ever, tend to be skewed to the downside; whether that be trade war escalation, the ramp-up of the Russia-Ukraine crisis, or market turmoil over interest rate policy tightening.