Growth in Global Auto Sales still strong, but escalation of US protectionism remains a threat

Scotiabank Economist Juan Manuel Herrera issues his first Global Auto Report

TORONTO, July 9, 2018 /CNW/ - The growth of auto sales to date in 2018 has been led by strong gains in developing economies, but US protectionism may stall further gains, wrote Scotiabank Economist Juan Manuel Herrera in the July 2018 Global Auto Report.

"The growth in sales thus far in 2018 has, as expected, been led by strong gains in developing economies while a number of advanced economies have reached sales plateaux, albeit near record levels," said Juan Manuel Herrera. "The global economy remains solid amid a mutually reinforcing expansion brought about by rising trade flows across the world. An escalation of US protectionism, however, threatens to slow the pace of global growth."

Highlights of auto sales to mid-year in the report include:

    --  Automobile sales in the US and Canada remain just below record-high
        sales levels following a year-on-year decline of 1.7% in June in Canada
        and a strong 4.7% y/y expansion in June in the US.
        --  A slight increase in purchases in Central Canada has been offset by
            sales declines in Western and Atlantic Canada so far in 2018.
        --  Sales in each of the Atlantic Provinces have decreased year to date
            for a regional decline of 7.7% y/y.
        --  Purchases in Western Canada are down by 1.1% y/y YTD after four
            consecutive months of year-on-year declines.

    --  Global tariffs on US auto imports would likely result in tit-for-tat
        retaliatory measures by affected nations.
        --  If the US imposes tariffs on all countries, but maintains duty-free
            trade under NAFTA, the impact on the Detroit Three automakers would
            be relatively subdued since non-NAFTA imports make up approximately
            5% of their combined sales in the US.
        --  An import tariff imposed on foreign autos from Canada and Mexico
            would impact a much larger swath of vehicles sold in the US, and
            would seriously hurt the Detroit Three firms.

    --  Political uncertainty in Mexico dampened purchases of vehicles in the
        lead-up to the Presidential election on July 1st, with a year-to-May
        decrease of 8.8% y/y.
        --  Sales in Mexico are expected to bounce back in the second half of
            2018.

    --  Sales declines in the United Kingdom have been large enough to drag down
        the growth rate of vehicle purchases to 1.4% y/y in Western Europe so
        far in 2018.
        --  Auto purchases in the UK are down 6.8% y/y year-to-May amidst
            dampened economic growth brought on by Brexit uncertainty. In
            comparison, vehicle sales in the rest of Western Europe have
            advanced by 3.2% y/y year-to-date.
        --  Sales in Eastern Europe have climbed by a strong 6.3% y/y so far in
            2018 owing to a surge in auto deliveries in Russia.

    --  Purchases of automobiles in South America expanded by double digits in
        year-on-year terms in the first five months of 2018 led by Brazil and
        Chile.
        --  Sales in Brazil, the largest auto market on the continent, have
            risen by 16% y/y YTD in 2018 as the country leaves behind the
            2015-16 recession and weak economic growth in 2017.
        --  Auto purchases in Chile have spiked by 25% y/y so far in 2018
            following a couple of years of depressed growth. Continent-wide
            vehicle deliveries in South America expanded by 2.2% y/y in May for
            a year-to-date rise of 14% y/y.

    --  An increase in auto purchases in China in recent months has lifted sales
        in the Asia-Pacific region, which follows a weak performance for the
        sector in late-2017.

Scotiabank Economics provides in-depth commentary on economic, financial market, and policy developments, both domestically and internationally.

Read the full July 2018 Scotiabank Global Auto Report online here.

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SOURCE Scotiabank