Russia and Turkey tops in Central & Eastern Europe

Russia and Turkey will deliver the greatest volume growth in Central and Eastern Europe (C&EE) this year said Carol Thomas, Central and Eastern European Analyst for J.D. Power at the company’s Global Automotive Outlook Spring Conference in London.

After a steeper economic downturn, recovery in Eastern Europe has been much more energetic than in Western Europe. Last year saw steady growth in the GDP of the region and Thomas forecasts this to continue with a 3.9% increase this year and 4.9% in 2012. The seasonally adjusted annual rate of light vehicle sales picked up sharply in the second half of 2010 and almost all markets in the region are growing this year.

Economic growth in C&EE will be more than double that in Western Europe from 2011 until 2018 but lower than was seen between 2001 and 2008. The risk of an overheating economy is most pronounced in Turkey and, to a lesser extent, Russia. Interest rates are still very low, but inflationary pressure means that further, modest rate hikes are likely this year. The oil price spike provides opportunities for Russia but will threaten growth prospects for the rest of the region.

In Poland, the only market to be in decline this year, a change in VAT refund legislation from January 2011 led to a pull forward of corporate sales into the second half of last year. VAT was increased from 22% to 23% in January and there is a risk of further increases from 2012. The sales decline is expected to steepen in the second half of this year before demand picks up again in 2012.

The economic outlook in Russia has improved on the back of higher oil prices. In the automotive market, the 2011 scrappage scheme was originally felt to be less generous than was originally expected but it has now been extended until the end of the year. The forecast figures may, therefore, need to be revised upwards. Russia is expected to avoid the sort of post-scrappage hangover so often seen in Western Europe.

The Turkish car market reached a new peak in 2010 and is expected to do so again this year. Political stability remains high in the run-up to this year’s parliamentary election. Interest rate increases have been delayed but the Turkish economy is more at risk of overheating than most in the current environment. The market forecast, therefore, carries both an upside and a downside risk.

The regional outlook for 2011 has improved over the last six months mainly due to the strength of demand in Russia and Turkey. Most of the smaller countries in the region are now in recovery and should post double-digit growth rates this year. The recovery, however, is coming from a low base (-42% in 2009) and a new demand peak is not expected before 2014. Most East European car density rates remain a fraction of typical Western Europe levels whilst, in per thousand adult terms, sales still lag far behind. There is a greater level of pent-up demand ready to be released once economic conditions become more supportive.

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