Increasingly Bearish On Weak Consumer Growth, But Some Bright Spots Remain


Passenger car sales across much of Central and Eastern Europe (CEE) ha ve declined amid generally weak private consumption growth and paucity of credit for vehicle loans. In some markets, however, we have witnessed strong growth in this segment on the back of an ongoing resurgence in private consumption. In light of monthly sales figures and our outlook for private consumption, we have revised a number of our 2012 sales forecasts.

Romania

Passenger car sales in Romania declined 9.4% year-on-year (y-o-y) over the first eight months of 2012, to 44,392 units. Growth in the segment has slowed considerably since the beginning of the year, and sales have consistently declined y-o-y since April. Previously, we believed that sales in this segment would increase 4% in 2012, a considerable slowdown from recent years, on the back of reduced consumer sentiment, paucity of credit, and weak economic growth in the country. In light of the reduced sales figures and ongoing weak outlook for private consumption, however, we are revising our 2012 sales forecast in this segment to a more bearish 7% decline.

We believe that private consumption will remain weak in the country for the rest of the year, with recent data showing that consumer confidence declined sharply in August, and unemployment increased in July. Credit also remains scarce. These factors will have a negative impact on passenger car sales, and have partly informed our more bearish forecast.

Strong Sales Prompt Forecast Revision
Hungary Monthly Passenger Car Sales, CBUs

Hungary

Passenger car sales in Hungary increased 18.6% y-o-y over the first eight months of 2012, to 35,796 units. Previously, we had forecast 8% growth in this segment over the year. We are now revising this forecast to a more bullish 15% increase in 2012. This upward revision is in light of the strong sales figures in the year to date, but is moderated somewhat by the bearish outlook for private consumption over the rest of the year.

Household consumption declined by 1.6% y-o-y in the second quarter of 2012, and we believe this will continue to fall throughout the year. Further, consumer confidence continues to decline, and credit growth has fallen dramatically over the year ( see our online service, September 21, ' Only Modest Growth Expected In 2013').

Slovakia

In Slovakia, passenger car sales increased 3.5% y-o-y over the first eight months of 2012, to 46,515 units. Currently, we forecast 3.8% growth in this segment in 2012, and we maintain this forecast for now.

We believe that Slovakia's household segment is liable to remain depressed for the foreseeable future, due to a weak labour market and government austerity measures. Unemployment remains high, and real wage growth is stagnating somewhat. Indeed, we maintain our prior forecast for private consumption to contract by 1.0% in real terms in 2012 ( see ' Strong Headline Growth Obscures Weaker Fundamentals', September 20).

Private Consumption Drives Sales
Latvia Monthly Passenger Car Sales, CBUs

Latvia

In Latvia, passenger car sales increased 33.6% in the first eight months of the year, to 7,251 units. In light of these sales figures, we are revising our 2012 sales forecast to a 28% increase.

Private consumption remains relatively robust in the country, and unemployment is declining somewhat ( see ' Robust Growth But Vulnerabilities Remain' , August 17). The view that private consumption will remain relatively robust over the course of the year has partly informed our sales forecast.

Passenger car sales in the country reached their peak in 2007 before deteriorating rapidly for several years. Despite some resurgence since 2010, sales volumes are still far below this peak. We believe the growth witnessed in the 8M12 period is ongoing 'pent-up demand' from this low-point.

Slovenia

In Slovenia, passenger car sales declined 15.2% y-o-y over the first eight months of 2012, to 35,504 units. Currently, we forecast sales in this segment to decline 12% in the year. We maintain this forecast for now, as the year to date average was affected by a 26% y-o-y decline in August sales volumes. As the market is relatively small, a fairly minor drop in sales volumes can result in a big percentage change. We expect to see the market stabilise somewhat over the remainder of the year, and believe it is unlikely we will see such large changes again.

Private consumption has declined over the year, and we expect it to remain subdued for some time. Further, we believe credit growth will remain lacklustre over the year (see our online service, September 21, ' Growth Downgrades In 2012 And 2013'). This bearish outlook has partly informed our sales growth forecast for the year.

Turkey

In Turkey, passenger car sales declined 11.3% y-o-y over the first eight months of 2012, to 330,257 units. Despite more substantial declines earlier in the year, volumes experienced a slight uptick in July and August. Previously, we forecasted a 5% decline in this segment in 2012. In light of these declining sales figures, and declining consumption and a slowdown in credit growth, we are revising this to a more bearish 8% decline in the year.

Our view that private consumption growth would slow significantly over the course of 2012 has continued to play out, with the GDP component contracting by 0.5% y-o-y in Q212 - the fifth consecutive quarter of slowing growth. A similar degree of adjustment has been witnessed in credit dynamics, with consumer loan growth falling back to the 15% y-o-y level in recent weeks, having crept above 40% in mid-2011 ( see ' Economic Rebalancing To Continue ' , September 11). This negative macroeconomic outlook has partly informed our bearish sales forecast revision.

Lithuania

In Lithuania, passenger car sales declined 6.3% y-o-y over the first eight months of 2012, to 8,210 units. Previously, we had forecast sales in this segment to increase 10% in 2012. In light of these sales figures and our views on private consumption continuing to moderate over the year, we are revising our 2012 forecast to a more bearish 5% decline.

Private consumption, although increasing, has moderated somewhat over the course of the year, and we believe this will continue for the remainder of 2012. Further, despite decreasing in recent months, unemployment remains high ( see ' Recovery To Continue Moderating ' , September 7). This outlook has partly informed our bearish 2012 sales forecast revision.

Bleak Private Consumption Outlook Prompts Downward Revision
Serbia Monthly Passenger Car Sales, CBUs

Serbia

Vehicle sales in Serbia have declined 27.7% y-o-y over the first eight months of 2012, to 16,639 units. In light of these weak sales figures and the bleak outlook for consumption, we are revising our forecasts to a more bearish 22% decline in 2012. We have also become somewhat more bearish on our 2013 sales forecast, forecasting growth of 3.5%. This growth is on the back of the likelihood of a small resurgence in sales due to pent-up demand in the country, moderated somewhat, however, by ongoing weak consumer sentiment.

Vehicle sales in the first half of the year were rather more subdued than in the corresponding part of 2011. Sales growth stagnated somewhat in the second half of 2011, and we expect H212 sales volumes to be closer in line with these figures. This has partly informed our sales forecast for the year.

Total vehicle sales have been declining in Serbia since 2007. We believe the market will experience a small resurgence in 2013, mostly due to pent-up demand from several years of declining sales.

Household consumption has stagnated somewhat in 2012, and rising inflation combined with the government's ongoing austerity measures have eroded consumer sentiment further ( see 'Still Set For Rate Cut By End-2012', August 10). We expect these trends to continue into 2013. This bearish outlook has informed our bearish sales forecast revision for 2012, and also dampened our longer term sales forecasts.

Poland

Passenger car sales in Poland increased 3.7% year-on-year (y-o-y) to 181,408 units in the first eight months of 2012. As the monthly sales chart shows, however, this growth has slowed considerably since May, with sales declining 7.7% y-o-y in August and 13.4% y-o-y in July. It is BMI's long-held belief that, despite strong growth earlier in the year, the passenger car segment will increase by 3.5% in 2012. We maintain this forecast, as we believe that over the remainder of the year, private consumption will remain relatively subdued.

Household consumption growth has gradually decelerated from 3.9% y-o-y in Q211 to 2.1% y-o-y in Q112. We expect this trend to continue over the year and forecast real growth of 1.5% due to the slowdown in investment after the European football championships and weak export growth.

Real wage growth, which has already been weak or negative since early 2011, will be hit by a slowing investment and external demand, coupled with already high unemployment at 12.4% in June. Government austerity measures will also cap increases in public sector wages. We believe that household income growth is therefore likely to remain subdued into mid-2013.

Further, the gross amount of consumer loans fell by 2.0% y-o-y in June, weighed down by impaired loans accounting for 17.6% of total consumer lending. Households have sustained recent consumption growth by drawing down savings, which are at record lows. Given the balance sheet pressures and rising unemployment, we expect households to boost their savings rate over the coming quarters, depressing consumption. We believe that these factors will continue to dampen passenger car sales growth, and have informed our 2012 sales forecast.

Estonia

Passenger car sales in Estonia increased 8.5% y-o-y, to 1,423 units in August. Over the first eight months of the year, sales in this segment have increased 19% y-o-y, to 11,872 units. We recently upgraded our 2012 sales forecast to 22% growth, based on a bounce-back from low sales volumes in previous years and buoyant consumer demand ( see our online service, 'Passenger Car Sales Surge On Consumer Demand', August 24). We maintain this forecast for now.

BMI recently revised down our real GDP growth forecasts for Estonia to 2.2% in 2012, from 2.7% previously ( see 'Slower GDP Growth Expected', August 15). Despite this, we expect consumer demand to remain resilient.

Retail trade continues to come in strong, with growth in the real retail trade index coming in at 8.1% y-o-y in June, down only slightly from 9.4% in May. In addition, the unemployment rate in Estonia fell to 10.2% in Q212 from 13.3% in the same period of 2011, below the eurozone average in June of 11.2%. Moreover, Estonian real wages have continued to rise, which when combined with relatively healthy household balance sheets and an improving labour market will continue to keep private consumption well supported. BMI believes these factors will lead to increases in consumer spending and boost passenger car sales. This has partly informed our bullish forecast revision for sales growth in this segment.

Passenger car sales in Estonia reached 30,912 units in 2007. By 2009, this figure had plummeted to 9,946 units. Since then, we believe growth in this segment has come from a 'bounce-back effect', as a result of previously pent-up consumer demand. This has partly informed our bullish forecast revision for sales in this segment.

Czech Republic

In the first eight months of 2012, passenger car sales in the Czech Republic increased 3.6% y-o-y, to 118,584 units. This represents something of a slowdown from the 5% y-o-y growth seen over the first seven months of the year ( see 'Growth Still Set To Dwindle', August 17). BMI, however, has long maintained that passenger car sales will not be able to maintain the strong rate of growth observed earlier in the year due to weak macroeconomic factors. We stand by our forecast for 3% growth in this segment in 2012.

Household consumption continues to be battered by a combination of fiscal austerity at home and low confidence as a result of a high degree of uncertainty surrounding the future of the eurozone bloc ( see our online service, September 4, 'Return To Economic Growth In 2013'). Further, the slowdown in Czech industry, resulting from lower demand from its main trading partners, has fed through to a relatively high unemployment rate - 8.3% in July, up from 8.1% in June. Credit growth to households remains relatively lacklustre, coming in at 4.2% y-o-y in July, of which only 17.5% is consumer credit, versus 70.9% accounting for lending for house purchases.

Accordingly, we forecast private consumption to fall by 3.5% in 2012. We believe that the weak consumer story in the country, combined with the slowdown in credit growth, will result in relatively lacklustre growth in passenger car sales over the remainder of 2012.

Previously, passenger car sales fell 11.45% in 2009, rose 4.69% in 2010, and increased 2.39% in 2011. Czech passenger car sales reached their peak in 2008, at 182,554 units. We forecast that sales will not surpass this level until 2014. We believe that pent-up demand explains the strong growth figures seen in the first part of the year, despite the weak macro fundamentals.

Russia

In the first eight months of 2012, passenger car sales in Russia grew 14.5% from the same period in 2011 to a total of 1,928,216. BMI forecasts 12% growth in 2012 in this segment. We maintain this view for now, and believe private consumption will moderate somewhat over the remainder of the year, bringing sales in this segment in line with our 2012 forecast.

We maintain a bearish view on private consumption growth in the latter part of 2012, and believe that retail sales will also fall over the remainder of the year. We believe that this will impact passenger car sales somewhat, and has partly informed our sales outlook for the passenger car market.

This article is tagged to:
Sector: Autos
Geography: Europe