Includes 3 FREE quarterly updates
Many of our key views for major global markets in 2012 looked to be playing out at the end of the first quarter, but the pace of growth in some instances (either positive or negative) has been greater than expected and prompted forecast revisions. This is particularly true of the US, which we expected to outperform other developed states, but its momentum so far has led us to raise our growth projection for the year. Similarly, while we had previously highlighted impending risks in leading emerging markets (EMs) such as Turkey and Brazil, a sluggish Q1 has confirmed our fears and our forecasts have been revised accordingly.
Recovery And Replacements Fuel Growth In line with BMI's view that pent-up demand and more fuel efficient vehicles on offer in the US would enable the industry better to prepare for soaring fuel costs in 2012 than in 2008, passenger car sales in the US rose 16% year-on-year (y-o-y) in March and 19.5% y-o-y for Q112. BMI has revised its forecast for passenger car sales growth to 15%, which would take car sales more than 7mn units for the first time since 2007. As fuel costs soar, the key driver of sales is improved fuel efficiency, especially as the average age of US cars is at a high of 11 years.
Although the key factors driving US growth in 2012, replacing an ageing fleet and improved supplies for Japanese carmakers, are not likely to carry over beyond this year, they leave the industry in a much better position to return to its psychological benchmark of 16mn units before the end of our forecast period, in 2016. This is even with a slowdown to more stable average annual growth of 3-4% over 2013-2016. Replacement sales are also continuing to fuel rapid growth in Japan, especially as the first anniversary of the earthquake and tsunami will provide a low base for sales from March onwards. Passenger car sales were up 76.3% y-o-y in March and 50.3% in Q112. For the meantime, we have retained our forecast for full-year growth of 10.7%, as a recovery in sales had started by Q311, meaning the base effect should be less prevalent in H212. However, the extension of subsidies for purchases of fuel-efficient vehicles will continue to produce upside risk to our outlook.
EM Risks Become Reality In our last update we underlined the worsening position of key EMs, such as Brazil and China. Results for March confirmed these fears, as sales in China have remained in negative territory for Q1 (-1.3% y-o-y), although growth of 4.5% y-o-y for March means the market looks slightly better than at the end of February, when two-month sales were down 4.4% y-o-y. In Brazil the changing regulatory environment is already hampering vehicle sales, as import restrictions and the inability of domestic production to cover the shortfall combine to leave demand unfulfilled. March car sales were down 1.9% y-o-y, leaving Q1 car sales 0.7% below Q111's total. As we expect the new restrictions to be a major dampener on sales through to at least the end of 2013, we have revised down our passenger car sales growth forecast for 2012 from 5.2% to 3.5%.
While Russia continues to post much higher growth than its BRIC (Brazil, Russia, India and China) peers, a weak Q1 has also led to a revisit of our forecast for this long-time outperformer. BMI's previous forecast of 10.6% y-o-y growth in 2012 was largely based on expectations of strong Q112 sales, bolstered by an increase in government spending ahead of the presidential elections in March 2012. However, Q112 sales of 614,273 units were significantly lower than Q411 sales of 715,015 units, and suggest that the impact of government spending has not been strong enough completely to offset the slump following the end of the scrappage scheme in December 2011.
In addition, there will be pressures from the broader economy. Our macroeconomic team has a belowconsensus forecast for Russian GDP growth forecast for 2012, projecting economic growth of 3.2%, compared with the 3.7% average Bloomberg consensus forecast. We believe consumer demand in 2012 will feel the pinch from a hike in electricity and gas tariffs later in the year, which might also add to inflationary pressures. Meanwhile, we expect demand from businesses to be cautious amid falling external demand, increasing financing constraints and policy uncertainty in Russia. We expect these forces to lead to a significant moderation in light vehicle sales growth, from 38% y-o-y in 2011 to nearly 7% y-o-y in 2012.
Europe Still Divided Europe remains the biggest risk for carmakers, and the region is still very much split in terms of performance, with Western European markets lagging behind. Car sales in our Core Europe group were down 7.8% y-o-y in March and 8.7% y-o-y for Q1, although this is a marginal improvement on the 9.5% contraction in the first two months of the year. Our Eastern Europe grouping, meanwhile, posted growth of 4% in March and 9.6% in Q112, which is in line with our forecast for the group to achieve positive growth. However, we believe there are some markets that are exposed to the Western slowdown more than others.
Germany is still proving to be the lynchpin of Western Europe car sales, with growth of 3.4% in March and 1.3% in Q112. While not stellar, it easily outperforms the Core Europe average and is in line with BMI's forecast for 1.2% growth in 2012. The UK is also contributing positive growth to the group's average, with sales up 1.8% in March and 0.9% in Q1.
Some of the biggest problems for the region are in Italy, where new car sales fell 26% in March and 20.9% in Q112. The truckers' strike hampered the delivery of both supplies for production and finished goods to market, which came out in the final results. After a fourth consecutive year of contraction in 2011, sales are poised for a further 6% y-o-y decline in 2012, according to BMI forecasts.
In Eastern Europe, our view that the region's leading exporters to the EU would be left particularly exposed to the downturn was reflected in March results. Czech car sales were down by 2% y-o-y, while sales in Slovakia fell 1% y-o-y and Slovenia posted a 12% y-o-y contraction. We believe these markets will remain at risk throughout the year, and have retained our forecast of 2.2% growth for the region, despite overall Q1 growth of 9.6%.