Abstract
Slovakia' s autos industry has positioned itself as an exporting base for major
European automakers, and
consequently is suffering as the deepening
recession curbs demand in Western Europe. The sharp fall in
export demand
has forced almost all manufacturers, including leaders Volkswagen (VW) and
PSA
Peugeot Citroën, to scale back plant production. BMI believes
production will continue to fall through
the rest of the year. Moreover,
growing government support for domestic manufacturers in Western
Europe
makes Slovakia more prone to potential withdrawal of production. A rebound in
export demand
will depend on the extent of the recovery of the global
economy, particularly in the eurozone.
Slovakia' s adoption of the euro in
January only exacerbates its export woes. The euro has helped the
country
avoid the financial problems hitting many of its regional rivals. The strength
of the currency,
however, will erode the competitiveness of Slovakia' s
exports and could cut domestic demand. This is
because Slovaks have taken
advantage of the strong euro and now shop for bargains in neighbouring
countries like Poland.
The government has announced a plan to spend
EUR33mn on a subsidy scheme for new car purchases in
a bid to boost sales,
which declined by a staggering 39.2% year-on-year (y-o-y) to 2,907 units in
January.
However, domestic demand accounts for a very small proportion of
total output in Slovakia. To that end,
the subsidy is unlikely to bring
significant increases in sales or provide enough incentive for the foreign
manufacturers to maintain investments in Slovakia. This is due to the fact
that most of the production is
targeted towards export demand.
The
Ministry of Economy estimates that production cuts will limit 2009 GDP growth
to 2.4% y-o-y,
compared with 10.4% in 2007. BMI believes that the
Slovakian automotive industry will operate below
capacity in 2009 as a
result of the downturn in export markets. We forecast a 2.9% fall in output in
the
year to 821,172 units, but recovery over the rest of the forecast
period with higher rates of capacity
utilisation. By end-2013, output will
exceed 946,000 units, a 10.6% increase over levels achieved in 2008.
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