The failing automobile industry is pushing us toward a global recession
- New car demand in the US is falling, according to HSBC.
- Honda, Nissan, Ford and General Motors have announced thousands of job cuts in Europe.
- Trade wars are hurting international auto exports and reducing demand.
- But there is hope - "industrial recessions" don't last very long and there may be an immediate bounce back.
The world is cooling off its love affair with cars, and that is a factor pushing the global economy toward recession, according to two economists at HSBC.
They produced this chart (below) comparing new car registrations to retail sales in the US to make their point. The US economy has been doing well, and shoppers have kept up their retail demand. But not for automobiles:
"Car demand is in decline due to a greater focus on environmental policies, increased urbanization and investment in alternatives - be it on- demand cars or public transport," according to HSBC economists Janet Henry and James Pomeroy. (On a side note: This is another piece of anecdotal evidence that ride-sharing apps like Uber are reducing the demand for cars.)
It's not just the US. The car industry in Europe is also shrinking:
- Honda announced it would close its plant in Swindon, England, with the loss of 3,500 jobs.
- Honda is also closing a factory in Turkey.
- Nissan said it would not build its X-Trail SUV in Sunderland, England.
- General Motors announced it was shutting seven plants globally in November 2018, with 14,000 jobs lost, reduced or moved.
- Ford is cutting operations in Europe with the loss of "thousands" of jobs.
- Jaguar Land Rover said in January it would cut 5,000 jobs in the UK.
"Parts of the world are already in industrial recession," Henry and Pomeroy said in a note to clients seen by Business Insider.
The HSBC pair are most concerned about the overall reduction in global trade and the effect that has had on global exports. Trade wars - US v China and Britain v the EU - have hit manufacturers the hardest as companies and consumers try to reduce their exposure to uncertain international markets. In so doing they have reduced their total aggregate economic output, hurting jobs.
"Much of the weakness in the global economy has been concentrated in the manufacturing sector"
The damage has been uneven. The US and China are both still doing relatively well thanks to their respective governments' fiscal stimuli. But industrial production in Europe and Japan are suffering.
"The surprise indices for the Eurozone and LatAm have collapsed since mid-2018 and consensus growth forecasts for the major economies have been lowered aggressively over the past six months or so," the HSBC note says.
"The consensus estimates for the US and China in 2018 are still completely unchanged from their June forecasts, while the full-year outturn for German GDP growth of 1.5% was 0.9% percentage points below its April consensus forecast. Japan's was 0.7ppts below and the latest consensus for Latin America is 1.2ppts below the mid-year consensus high."
"Much of the weakness in the global economy has been concentrated in the manufacturing sector: the global manufacturing PMI has dropped by 3.6 points since the beginning of 2018 while the services PMI has edged down by 1.6 points," the note says.
There may already be light at the end of the tunnel. "Industrial recessions" tend to be short, just a couple of quarters. And a majority of the major economies are based in services not manufacturing. In Germany, analysts expect the industrial sector to bounce back from a contraction in the second half of 2018.
"There are tentative signs that the worst of the industrial downturn may now be behind us in Europe and Japan, particularly as some of the one-off country-specific factors start to wane," Henry and Pomeroy say.
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