Bearish Sales Outlook Maintained As Sales Continue To Tumble
Passenger car sales have declined across much of Western Europe in September. BMI is increasingly bearish across many of these markets. Consumer sentiment remains subdued, weighed down by a number of ongoing macro pressures, and this has partly informed our forecast revision for Italy. These factors continue to weigh on consumer sentiment in France, Germany, and Spain, but we maintain our 2012 sales forecast for now. We caution, however, that downward pressure on consumer sentiment from fiscal retrenchment and other macro factors provides considerable downside risk to our sales forecasts.
In Germany, passenger car sales declined 11% year-on-year (y-o-y) in September, to some 250,000 units. Over the first nine months of the year, sales in this segment are down 2.7% y-o-y, to 2,337,311 units.
In September, we revised our sales forecast in this segment to a bearish 1% decline over the year, from a 1.1% increase previously forecast ( see our online service, September 13, ' Increasingly Bearish On Sales Outlook '). This revision was predicated on weak sales figures to date, combined with our increasingly bearish outlook for consumer confidence in the country. We maintain this 2012 sales forecast for now, as we believe September sales figures have dragged the year-to-date sales figures down, and we expect the reduction in sales to abate somewhat over the remainder of the year.
In 2012, we forecast 0.4% y-o-y growth in household consumption ( see our online service, July 11, 'Falling Confidence To Hit Growth Hard'). The first quarter of 2012 saw real private consumption growth of 1.7% y-o-y; this corresponds to the moderate uptick in passenger car sales in the first part of the year. However, we do not believe that this private consumption growth rate is sustainable over the course of 2012, with ongoing fears of a eurozone breakup likely prompting German households to proceed more cautiously. Moreover, policy uncertainty in relation to proposals to provide direct funding to troubled eurozone banks could foster expectations among German households that the tax burden of future bailout funds through the European Stability Mechanism is set to rise, keeping consumers' pursestrings tight. Our view of an increasingly bearish consumer outlook partly informed our downward forecast revision in the passenger car segment earlier in the year.
In Spain, passenger car sales declined 37% y-o-y in September, to 35,100 units. Over the first nine months of the year, sales in this segment declined 11% y-o-y, to 555,312 units.
In September, we revised our sales forecast in this segment to a bearish 10% decline over the year, from a 7.1% decline previously forecast ( see our online service, September 12, ' Increasingly Bearish On Passenger Car Sales '). This revision was predicated on weak sales figures to date, combined with our view of ongoing downward pressure on consumer sentiment in the country. This view is playing out, and we maintain our sales forecast for now.
The ongoing pressure on consumer sentiment in Spain comes from a number of factors, including rising unemployment, deflation in the housing market, and stringent fiscal cuts ( see our online service, August 13, 'Growth Downgrade As Bailout Looms'). In light of this ongoing weak consumer story, we do not expect the segment to return to positive growth territory until 2014.
In France, passenger car sales declined 18.3% y-o-y in September, to 136,900 units. Over the first nine months of the year, sales in this segment declined 13.9% y-o-y, to 1,430,884 units.
In July, BMI revised its forecast to a more bearish 12% decrease in passenger car sales in 2012, from a 9% fall previously ( see our online service, July 6, ' Continued Weakness In Western European Market '). We believe that the weakness in the passenger car market reflects the absence of last year's vehicle scrappage scheme, and the underlying weaknesses in private demand. We maintain this forecast for now, but caution that further contractions in consumer spending could provide downside risks.
BMI believes that consumer sentiment will remain weak in France. We forecast private consumption to grow by just 0.1% in real terms in 2012 ( see our online service, August 1, 'Tail Risks Growing For Banks'). Further, consumer credit growth is expected to remain weak due to the bleak economic outlook. A weak labour market is also likely to weigh on household spending. We are forecasting unemployment to reach 10.4% by end-2012, rising to 10.5% in 2013, due to weak external conditions, fiscal retrenchment and declining domestic competitiveness.
In addition, given the increasing economic uncertainty derived from the eurozone sovereign debt crisis, we expect household spending behaviour to remain prudent, with the household savings rate continuing to rise towards the 18% level. Indeed, aggregate loan growth shrunk to just 0.9% y-o-y in May, from 5.0% in January 2012. As a result, we have downgraded our forecasts for loan growth in 2012 to just 0.5%, from a previous forecast of 3.0%. These factors have informed our bearish view on passenger car sales growth.
In Italy, passenger car sales declined 25.4% y-o-y in September, to 109,200 units. Over the first nine months of the year, sales in this segment declined 20.4% y-o-y, to 1,086,169 units.
In July, we revised our sales forecast in this segment to a more bearish 15% decline over the year, compared with a drop of 8.1% previously forecast. We believe that consumer spending will remain subdued in the country in light of ongoing austerity measures and reduced consumer sentiment. In light of this bearish outlook, combined with weak year-to-date sales figures, we are revising our 2012 sales forecast in this segment to a more bearish 20% decrease.
We forecast consumption to contract by 2.3% in 2012, while we expect the sector to fall by a further 0.1% in 2013 as Italian households are hit by austerity measures ( see our online service, September 12, ' Economy To Flatline In 2013 '). In March, households paid the increased regional surtax on personal income and, in mid-June, they were hit by a new property tax. A proposed VAT increase in October was put off, only to be replaced by EUR26bn in spending cuts that will hit social transfers.
Unemployment will also continue to weigh on consumption. The jobless rate was at a record high of 10.7% in July. This is likely to increase further as the new round of spending cuts prescribes a 10% cut in staff numbers across government. Furthermore, the unemployment rate is likely to remain elevated in the coming years given rigidities in the labour market. Liberalisation measures passed by the Monti government have failed to radically overhaul inflexible labour laws that will discourage employers from rapidly expanding their payroll as the economy picks up. This bearish consumer outlook has partly informed our passenger car sales forecast revision.