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Automotive rebound leading global growth

Global vehicle production is re-energizing the global economy according to a Scotia Economics report that says vehicle production will continue to strengthen in coming months with North America, Japan and other nations in Asia being the main beneficiaries.


June 29, 2011
by PLANT STAFF

TORONTO: Global vehicle production is re-energizing the global economy according to a Scotia Economics report.

The Global Economics Report says vehicle production bottomed out in May, and will continue to strengthen in coming months with North America, Japan and other nations in Asia being the main beneficiaries.

“We estimate that rising vehicle output will add at least an annualized 0.5 percentage points to global GDP growth in the third quarter,” said Carlos Gomes, senior economist and auto industry specialist for Scotia Economics. “This represents a full percentage point reversal from the second quarter soft patch, when supply chain disruptions forced automakers to slash production.”

The report says the impact will be greatest in Asia, which accounts for two-thirds of overall production by Japanese automakers. North American automakers are also gearing up to boost third-quarter production 18% above a year earlier.

Scotia Economics says this represents a sharp acceleration from the slowdown in the April-June period, when supply chain disruptions limited North American assemblies to an annual rate of only 12.4 million units, down from 13.3 million in the opening months of 2011.

“We estimate that third-quarter vehicle output in North America will climb to roughly an annualized 14 million units – the highest level since mid-2008, prior to the sharp fall-off in global economic activity later that year,” said Gomes

He said Canadian plants will be among the major beneficiaries from higher output in the July-September period, jumping 21% year over year in the third quarter, compared to a 3% gain in the first half of 2011.

“This outperformance reflects the fact that two big Japanese automakers typically account for 36% of overall Canadian vehicle output, a much higher share than Japanese assemblers garner in either the US or Mexico. Nevertheless, improving vehicle production throughout the region will add roughly an annualized percentage point to third-quarter GDP growth across North America,” said Gomes.

Japanese automakers are also shifting more vehicle assemblies to the region. He said this reflects a strong yen, which is hindering their export competiveness from Japan, “as well as a desire to diversify their production in light of ongoing concerns over Japan’s near-term electricity supply.”

Europe – especially the UK and the Czech Republic – will also benefit from rising Japanese vehicle production in the third quarter; however, the report says robust global demand for luxury European models will be a more important driver of a 5% year-over-year increase in third-quarter vehicle assemblies across the region.