Commercial vehicle registrations in the European Union have increased by 4.2% year on year (y/y) during first half 2017. However, the rate of growth is more modest in the recent month, gaining just 2.5% y/y during June.
IHS Markit perspective
- Significance: European Union (EU) commercial vehicle (CV) registrations have grown by 4.2% y/y during the first half of 2017, although it has been a more modest 2.5% y/y increase in June.
- Implications: The general picture in the region remains positive from a macroeconomic standpoint with strong indicators, confidence, and employment levels in the Eurozone.
- Outlook: Despite the previously forecast slowdown in the UK due to earlier record performances, IHS Markit anticipates that it will be another year of positive growth for the LCV category in the EU+EFTA. However, MHCV market performance is not reflecting the positive economic performance and we project it to be slightly down on 2016.
Commercial vehicle (CV) demand in the European Union (EU) have ended the first half of 2017 on a positive track, according to the latest data published by the European Automobile Manufacturers' Association (ACEA). Registrations of light commercial vehicles (LCVs) under 3.5 tonnes, medium and heavy commercial vehicles (MHCVs), and medium and heavy buses and coaches over 3.5 tonnes increased by 4.2% year on year (y/y) to 1,221,811 units. However, the gain in the most recent month has been down on this rate, with registrations increasing by just 2.5% y/y to 229,570 units.
As for the European Free Trade Agreement (EFTA) region, comprising Iceland, Norway, and Switzerland, the first half has also brought with it a positive performance. Registrations have increased by 5.9% y/y during the year to date (YTD) to 41,542 units. However, the most recent month has seen an increase of only 0.7% y/y to 7,756 units.
During June, LCV registrations in the EU helped maintain the positive trajectory in the wider CV category. Demand in the month was seen to have reached 193,444 units, an increase of 3.2% y/y. It was a largely positive month for the five biggest markets in the region. The largest market, France, recorded a gain of 2.0% y/y to 46,221 units, while the UK recorded a gain of 1.8% y/y despite a high base of comparison. Even larger gains were to be found in the Spanish (+8.7% y/y) and Italian (+13.3% y/y) markets, as both continue their recovery from exceptionally low base of comparisons on the back of improved confidence. The Italian market has also been boosted by budgetary measures that are incentivising businesses to make investments. The exception to this growth performance has been the German market which has seen a fall of 4.5% y/y to 24,528 units.
Elsewhere in the EU the situation has also been mixed, but the general trend is one of gains, with many being in the double-digit percentage range. This group included Sweden, Finland, Bulgaria, and Portugal.
The growth this month has helped maintain growth rates in the EU during the YTD, with registrations now up by 4.7% y/y to 1,014,969 units.
MHCV registrations in the EU in June have had a poorer performance, with demand for trucks with a GVW over 3.5 tonnes dipping by 1.7% y/y to 32,620 units, while those for HCVs with a GVW over 16 tonnes slipped by 1.0% y/y to 26,307 units. The leading market in the MHCV category, Germany, struggled as its registrations fell by 13.1% y/y to 7,741 units. Other notable markets to suffer a decline this month have included Poland (-4.2% y/y) and Netherlands (-1.4% y/y). However, the French market has grown by 8.8% y/y and the UK is up by 8.0% y/y. Furthermore, Spain and Italy are up by 7.8% y/y and 4.2% y/y, respectively.
Nevertheless, the MHCV category has remained in positive territory in the YTD, with its registrations growing by 1.8% y/y to 186,972 units.
Outlook and implications
It has been a mixed performance for the EU CV market during the first half of the year, with fluctuations caused by working day factors causing an impact due to the leap year in 2016 and a shift in the timing of Easter.
Nevertheless, the general picture in the region remains positive from a macroeconomic standpoint. First-quarter Eurozone real GDP growth was revised upwards to 0.6% quarter on quarter (q/q). The expansion was driven by broadly based gains in domestic demand. It is likely to maintain a solid growth pace in the second quarter, as domestic demand remains a major engine of Eurozone growth, evidenced by a strong retail sales report for May. Meanwhile, foreign trade is likely to have made a positive contribution, with export growth outpacing import growth. Furthermore, the IHS Markit Eurozone Manufacturing PMI rose 0.4 point to 57.4 in June, as output and new orders increased at their fastest rates in six years, although the services PMI eased 0.9 point to 55.4, as growth moderated in key markets. New order growth remained strong, straining capacity and leading to an increase in order backlogs. Both manufacturing and services surveys reported robust employment growth in recent months. Business sentiment has also increased to its highest level in nearly a decade, while consumer confidence has reached its highest mark since April 2001. Positive leading indicators suggest that real GDP growth will remain decent in the second half of 2017 and into 2018, probably averaging around 0.4% q/q. Even so, while the latest data suggest risks to Eurozone growth forecasts are slanting to the upside, this is not a consistent story across the region. Some economies are still struggling to develop stronger and more broadly based recoveries. Growth could be hampered by consumers being more cautious as their purchasing power as real incomes are squeezed by inflation overpowering limited wage growth in most countries. Much will likely depend on how well Eurozone labour markets does. The latest data suggest the pace of the improvement in early 2017 was more positive than previously reported. The Eurozone unemployment rate was down to 9.3% in April and May from a peak of 12.1% in 2013.
Despite the previously forecast slow-down in the UK due to earlier record performances, IHS Markit anticipates that it will be another year of positive growth for the LCV category in the EU+EFTA. We expect that registrations will grow by 2.6% y/y to 2.062 million units. This suggests that the market will lose some of the early gains built up over the second half of the year, but it is unlikely that demand will plunge significantly. However, we do see a fall appearing in 2018 and a certain amount of fluctuation over the following few years.
As for the MHCV market, Ewa Root, manager of IHS Market's Global Truck Sales Service, has said that economic expansion in west Europe has yet to translate into a real boost in truck sales. Despite robust economic growth in Germany and Spain, both countries have registered a negative growth in H1 2017. However, the UK truck market has surprised on the upside during this period, although we expect demand to slow down now that the country has begun the process of leaving the European Union, which will inevitably heighten caution in companies' expenditure. Similarly, in Central Europe, in spite of economic expansion supported by a recovery in investment and construction, we continue to expect truck demand to dip in 2017, mainly reflecting the cyclical downturn after a period of record sales in 2015 and 2016. In addition, aggregate haulage capacity in Central Europe is at a record level and it is not expected to grow further, at least in the short term. This has been evident particularly in the heavy tractor sales as this segment has expanded a massive 30% y/y in 2015 and 20% in 2016. This year we have seen a notable slow-down in demand for heavy tractors, primarily in the largest markets in the region, such as Poland, the Czech Republic, and Romania. In our latest forecast, we have upgraded our outlook for HCV sales in EU+EFTA. However, we still project that demand will be muted and slightly below the level reached in 2016.
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