IHS Automotive releases initial post-Brexit market expectations
IHS Automotive perspective
- Significance:Following the UK vote to exit the European Union (EU), IHS Automotive has released an initial forecast simulation as to what this will mean for light-vehicle registrations between 2016 and 2018.
- Implications: Unsurprisingly, we see an even greater fall in registrations during the coming years in the UK than already expected. This situation will also result in smaller gains in Western Europe and globally.
- Outlook:Given the great deal of unknowns at the moment, IHS Automotive will continue to track the ongoing situation and provide updates as required.
The UK is, unsurprisingly, anticipated to bear the brunt of the impact. We currently expect that while the market will remain up in the full year of 2016, helped along by a steady growth performance during the first five months of year, despite a strong string of gains over the past few years. However, we have reduced this improvement to just 1% year on year (y/y) to around 3.045 million units, versus the 3.2% y/y gain that had previously been anticipated. The declines that were already forecast to take place during 2017 and 2018 are now expected to be steeper. Registrations of light vehicles are now forecast to fall by 9.1% y/y to 2.758 million, rather than a 3.5% y/y decline. For 2018, registrations are now expected to hit 2.71 million units versus the 2.94 million units for our pre-referendum forecast.
In addition, our Western European forecast will now fall during the next two years despite further gains during 2016. Although light-vehicle registrations will grow by around 5.0% y/y this year to 15.64 million units, this will be behind the 15.75 million units that was expected. Furthermore, registrations in 2017 are expected to dip by 1.2% y/y to 15.45 million units, compared to the increase to 15.98 million that had been expected. During 2018, the situation is now expected to be flat at 15.45 million units rather than standing at 15.95 million units as was expected.
On a global basis, we also now expect growth to be less substantial over the next few years. During the current year, light-vehicle registrations are now seen to be 89.82 million units, an increase of 2.0% y/y, although this is below the 90.02 million units originally forecast. While a further gain of 1.4% y/y to 91.06 million units is anticipated in 2017, this is around 1.25 million units behind what had been originally anticipated. We also see global sales hitting 93.12 million units in 2018, versus the previous forecast of 94.5 million units.
Outlook and implications
These early indications are based upon the initial macro forecasts published by IHS on the impact that the leave vote will have. They are still subject to a great deal of unknown factors further down the line. For this reason, we currently assume a medium-to-hard Brexit scenario.
Our economic expectations for the effect on the UK market were first published last Friday (June 24, 2016). Factors that are expected to have a direct impact on our short-term forecast include an unwinding of GDP, with growth in 2017 now put at 0.2% instead of the previous forecast of 2.4%. In addition, the depreciation of the GB pound versus other currencies will have a negative impact on imported vehicles, and some OEMs are already considering what steps they will take to change pricing of overseas-built vehicles to offset the effect. Even so, there could be some benefits for vehicle producers initially from the depreciated pound, making vehicles even more competitive and attractive than they might have previously been.
However, as can be seen from our forecasts, Western Europe will not escape the impact of the UK's referendum. Indeed, IHS believes that the Eurozone's growth outlook has weakened appreciably following the UK's decision to leave the EU. Prior to the UK vote, IHS had been relatively upbeat about Eurozone GDP growth prospects, seeing GDP growth at 1.7% in 2016, 1.8% in 2017 and 1.6% in 2018. However, this forecast has now been cut to 1.4% in 2016, 0.9% in 2017 and 1.4% in 2018. In particular, business and consumer confidence is likely to take a prolonged and appreciable hit from heightened economic and political uncertainties as well as financial market turmoil. Sharply increased political instability is likely across the EU, with anti-EU and right-wing nationalist movements strengthened. Heightened instability and uncertainty is likely to weigh down on business investment and willingness to employ, while it is also likely to weaken consumers' willingness to make big-ticket purchases. Tighter credit conditions and weaker asset markets also threaten to affect businesses and consumers. Meanwhile, Eurozone exports to the UK - which is an important destination for many Eurozone countries - are likely to suffer from sharply reduced growth in the UK as well as a strengthening of the euro against the pound. However, the European Central Bank (ECB) has also indicated that it is prepared to take whatever action is necessary to ensure price and financial stability.
Ian Fletcher is Principal Analyst, IHS Automotive
Posted 28 June 2016