Passenger car sales in Italy increased 5.8% year-on-year (y-o-y) in the first three months of 2014, to 376,519 units. Previously, BMI forecast a 5.1% contraction in the segment over the full year as we believed consumers would remain reticent about big ticket purchases, and a recovery in the autos sector would likely lag behind broader improvements in private consumption.
However, we are now revising our 2014 forecast to a more bullish 3% growth, as improvements in consumer sentiment appear to be filtering though to the autos sector more than we had previously expected. Moreover, pent-up demand in the market from sustained declines has buoyed sales over the year-to-date, and low base effects from weak sales in 2013 have provided a further boost ( see graph).
|Demand Boost From Low Base Effects...|
|Italy Monthly Passenger Car Sales, Units|
Consumer sentiment is beginning to turn a corner, in line with the modest improvements in autos sales in recent months, but we caution that the recovery will be slow and we expect private consumption to remain relatively weak over the short-term ( see 'Tepid Recovery Highlights Need For Reform', March 11).
Indeed, Italian households are being hit by ongoing austerity measures, including higher taxes and cuts in social spending, while unemployment remains elevated, and real wage growth is fairly tepid. We had previously expected this to temper demand for big-ticket purchases, such as new cars, but low base effects and pent-up demand in the market from delayed purchasing decisions seems to be buoying the autos market.
A primary driver of growth to car sales in 2014 comes from the fact that 2013 marked the sixth consecutive year of declining car sales volumes in the country, and the market is now far below its 2007 peak of some 2.5mn units. BMI believes that this pent-up demand from delayed purchasing decisions helped temper the rate of decline in 2013, and will likely continue to boost sales growth in 2014.
Cautiously Optimistic Western Europe Outlook
Following the upward revision for our 2014 sales forecast, the outlook for the Italian market is now broadly in line our cautiously optimistic view on the wider Western European market.
Indeed, we expect the regional market to post modest sales growth in 2014, with Western European sales forecast to increase 2.4% over the year, following modest declines in 2013. However, we believe that this represents a bounce-back effect from years of pent-up demand (and delayed purchasing decisions), rather than a return of consumer confidence.
|... And Pent Up Demand|
|Italy Passenger Car Sales Data And Forecasts, Units|