IHS Global Insight Perspective | |
Significance | IHS Global Insight now expects the advanced economies of the world to contract by 2.0% in 2009. At the same time, emerging markets will see their GDP growth rate shrink from 5.8% in 2008 to just 2.9% this year. |
Implications | The extent of global interdependence and the high degree of synchronisation of business cycles across the globe currently being witnessed is unprecedented. Global real GDP is likely to decline this year for the first time since the 1930s. |
Outlook | Global light-vehicle production, now projected at 59 million units this year, is forecast to come in some 16 million units below the medium-term "industry planning volumes" set little more than 12 months ago. At these crisis volumes the industry, even on a global basis, will make severe losses and burn huge amounts of cash. |
First Decline in Global Real GDP Since 1930s Likely this Year
The IHS Global Insight Global Macroeconomic Forecast indicates that the current global economic downturn will be the deepest of the past six decades. The extent of global interdependence and the high degree of synchronisation of business cycles across the globe currently being witnessed is unprecedented. Global real GDP is likely to decline this year for the first time since the 1930s.
IHS Global Insight now expects that the advanced economies of the world will contract by 2.0% in 2009. At the same time, emerging markets will see their GDP growth rate shrink from 5.8% in 2008 to just 2.9% this year. Numerous emerging markets will see an outright contraction in real GDP. Global real GDP is projected to contract by 0.5% in 2009, which would represent the worst performance in post-war history and probably the worst since the 1930s.
The automotive industry is clearly one of the hardest-hit sectors of "the real economy" in this particular crisis. Vehicle sales in the United States and Western Europe had been falling fast since mid-2008, but during November every auto market in the world registered a slump in sales and orders. This level of synchronisation has never been seen before in peacetime. This systemic collapse of car sales around the world has encompassed both the Russian and Brazilian markets, both of which are now projected to switch from their recent rampant growth to sharp contraction. In the final quarter of 2008 we recognised the significant risks to the world economy and the magnified effect on the automotive industry. As a result, we presented a series of Integrated Alternative Scenarios (see World: 31 December 2008: IHS Global Insight Publishes Auto Market Alternative Scenario Forecasts).
At the time, we assigned a downside probability of 40% to a scenario whereby global volumes would fall to 58 million units. It is now becoming clear that the conditions for this downside scenario (world growth turning negative and credit markets still frozen) are now likely. As a result, we have issued a "re-forecast", published yesterday, in which we have effectively trimmed an additional 5 million vehicles from our 2009 forecasts. The "deep recessionary" environment is likely to cause "tipping points" for several key markets such as Russia, where the sharp realignment of energy prices will undermine even the market's medium-term prospects. Global light-vehicle production, now projected at 59 million units this year, is forecast to come in some 16 million units below the medium-term "industry planning volumes" set little more than 12 months ago. At these crisis volumes the industry, even on a global basis, will make severe losses and burn huge amounts of cash.
Demands for Policy Responses Will Intensify
The projected collapse of production will be heavily loaded in the first half of 2009 as inventory needs to be reined in almost everywhere, compounded by the still highly uncertain prospects for second-half selling rates.
Outlook and Implications
Europe
There were some signs that the sales rate in Europe stabilised during December, helping reduce inventory levels after extremely aggressive production stoppages at Europe's major automotive assembly plants during the month. Unfortunately, the majority of the unplanned stockpiles built up since mid-2008 still needs to be unloaded as we enter 2009. Government incentives to buy cars in several markets will support sales, providing a net boost of as much as 400,000 units, but the economic deterioration has been so severe that the effects of this have been completely swamped (see Germany: 14 January 2009: German Government Announces Auto Industry Financial Support Package; France: 5 December 2008: French Government Announces 1.5-bil.-Euro Auto Industry Aid Package; United Kingdom: 25 November 2008: U.K. Government Takes Limited Steps to Help Motor Industry in Pre-Budget Report; and Italy: 26 January 2009: Italian Government to Discuss Aid Package for Automotive Industry). In Russia (and Ukraine) sales are projected to fall back very sharply this year. The loss of over 600,000 units from the market will hit all exporters to Russia, pulling down region-wide output by just over 12%. First-quarter output is projected to fall by at least 25%.
Asia
The continued decline in the world's automotive markets has led to further reductions in the outlook for 2009 light-vehicle sales in Asia. The expectation of profound economic gloom in Japan and South Korea this year has resulted in a downward revision to sales of a combined 300,000 units for these two markets. The Indian market meanwhile fell very sharply in November and December. Restrictions on credit and a slowing economy mean that we now expect a fall in light-vehicle sales there in 2009 of 5.4%. China's government has recently reduced the purchase tax on cars with engines below 1.6 litres from 10% to 5% and this will provide some support to the market in this country, but we have still cut our 2009 growth forecast to just 3%, to 8.9 million units. Overall, Asian light-vehicle sales are forecast to total 19.59 million units this year, compared with our December forecast of 20.3 million units. The impact of the global recession on production in Asia in 2009 will be equally dismal. Massive cuts in demand across North America and Europe have resulted in a 570,000-unit downgrade to our Japanese output forecast this year, and a 340,000-unit cut to our South Korean estimate, thanks to lower exports. Both of these major export centres reacted slowly to the collapse in sales and inventory has built up dramatically across their long shipping/distribution chains. Chinese production cuts late in 2008 resulted in total output there of just 8.5 million units. Knock-on effects in 2009 mean that nearly 600,000 units have been taken out of our forecast for Chinese production this year compared with our December projection. In total, Asian light-vehicle production this year is expected to be 26.6 million units, compared with a previous projection of 28.4 million units.