Blog: Dave LeggettWe are still in it

Dave Leggett | 5 October 2009

The problems for car demand in the advanced economies are inextricably linked to the problems facing their economies. The economic outlook may be improving, but it is shaping up to be a long haul to recovery.

The International Monetary Fund (IMF) said last week that we may be over the worst. In its latest forecast for the global economy, the IMF says economic activity worldwide will expand by about 3 percent in 2010, after contracting by 1 percent in 2009.

The IMF also said that unprecedented international collaboration during the crisis had helped to avoid a global financial meltdown.

That is perhaps worth a restrained cheer.

But don't cheer too loudly. Deep problems remain, especially in the world's advanced economies where unemployment is still rising and where consumers are now saving more and spending less. And even with historically low interest rates, the days of easily available credit are gone for many.

The IMF said that unemployment 'would cast a long shadow over the recovery' and that growth resuming 'doesn’t mean that the crisis is behind us'.

The reality of the overall economic situation is perhaps particularly evident in the support that has been given to car markets. Scrappage schemes have lifted sales this year, but they bring some sales forward as consumers take advantage of temporary schemes.

In September's US sales result we saw how the end of 'Cash for Clunkers' had created a market void after the August rush. And manufacturers are apparently hanging back from the temptation to buy volume and share with heavy incentives of their own. It will be interesting to see where the US market eventually settles.

In Europe there are signs that some national scrappage schemes due to expire may be extended. That could cushion the decline to a 'normal' market, but in the end the level of car sales will reflect the state of the economy.

Ensuring that the fragile global economic recovery gathers strength in 2010 is the big challenge for policy-makers. And difficulties will likely persist in the West as consumption stays muted. As the IMF says, 'private demand in advanced economies remains very weak'. That's not a good recipe for car sales and the hangover from the consumer spending binge that ended so abruptly will last for a while yet.

US SALES: After the clunker party, the hangover

ITALY: Berlusconi warms to extending incentives [includes audio clip]

GERMANY: New car market maintains momentum in September




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