Increased consumer car demand due to improving global economic prospects and a lowering of the rating agency's sales growth requirements for the sector have changed the outlook on the global auto manufacturing industry over the next 12 to 18 months to stable from negative, said Moody's Investors Service in a report published on Wednesday (14 March).

"Stabilising our outlook reflects the largely good profits and strong cash flow the global auto manufacturing sector has been able to generate, and our expectation that improved business conditions will boost global light vehicle sales," said Moddy's SVP Falk Frey.

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The credit ratings agency has lowered its growth requirement for a stable outlook to 1%-3% sales growth from 2%-5% because automakers have been able to generate good profits and cash flows even when the industry fell short of Moody's previous growth target.

Global light vehicle sales are expected to rise 1.5% in 2018, unchanged from a Moody's forecast in December, but from a higher base given that reported 2017 sales were modestly stronger than the rating agency's year end projection. Moody's expects global sales growth to slow only slightly in 2019 to 1.3%.

"Despite a modest rise in inflation, the positive macroeconomic environment should support consumer automotive demand with growth prospects improving in most major car markets. A notable exception is the UK, where Brexit-related uncertainty will weigh on consumer spending decisions," Moody's said.

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In China, auto sales will grow 2% in 2018 and 2.5% in 2019 despite the expiration of a tax cut on small engine passenger vehicles that could cool auto sales gains this year. US sales will contract by a less than expected 1.2% in 2018 and 0.6% in 2019 mainly due to a modestly improving macro environment.

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Growth in western Europe will hit 2%, before slowing to 0.5% in 2019, driven by declining unemployment and stronger than average consumer confidence. Germany will be a standout in the region with 4% projected growth in 2018 due to the pull forward effect of trade in bonuses on older diesel vehicles, Moody's said.

In Japan, sales will contract slightly in 2018 before returning to modest growth in 2019 as improving labour market conditions and mild wage growth support strong household spending.