In what could be good news for the automotive industry, Fitch Ratings projected in its latest Global Economic Outlook (GEO) that the recovery in global growth is strengthening and is expected to pick up to 2.9 percent this year and peak at 3.1 percent in 2018, which would be the highest rate since 2010.

“Faster growth this year reflects a synchronized improvement across both advanced and emerging market economies,” Fitch chief economist Brian Coulton said.

“Macro policies and tightening labor markets are supporting demand growth in advanced countries, while the turnaround in China's housing market since 2015 and the recovery in commodity prices from early 2016 has fueled a rebound in emerging market demand,” Coulton continued.

The biggest positive forecast revision since Fitch’s GEO shared back in March is to the Eurozone. Here, stronger incoming data, improving external demand and greater confidence that European Central Bank qualitative easing is gaining traction on activity have resulted in an upward revision of 0.3pps to the 2017 Eurozone growth forecast, taking it to 2 percent.

The recent pick-up in world trade growth has also been striking, according to Fitch.

However, the outlook also mentioned this improving global picture implies an evolving monetary policy outlook.

Fitch pointed out that China has recently seen a tightening in credit conditions, which will start to have an impact on growth later this year and the Fed looks set to pursue a normalization course at a rate of three or four hikes per year through 2019. Low core inflation allows the European Central Bank to carry on with qualitative easing for the time being, but the reduction in deflation risks will see the program phased out by mid-2018.

“With the (U.S. Federal Reserve) now signaling that qualitative easing will start to be unwound later this year, these monetary policy adjustments could spark some volatility in global financial markets attuned to persistent monetary accommodation,” Coulton said.

Auto-specific analysis

As Fitch shared its robust projections, IHS Markit currently is expecting that the passenger car market in the European Union will grow by 1.7 percent year-over-year to almost 14.94 million units. Those expectations are coming off a performance by the EU that saw year-over-year growth come in at 7 percent in 2016.

IHS Markit analysts pointed out the passenger car market in the European Union rebounded during May, according to the latest data published by European Automobile Manufacturers' Association. Registrations during the month climbed by 7.6 percent year-over-year to 1,386,818 units. This figure has helped to increase the growth momentum as the year-to-date now stands at 6,719,209 units.

“A strong rate of growth has been stimulated by a robust economic performance in the Eurozone, with a real GDP increase of 0.5 percent quarter-over-quarter according to Eurostat figures with positive contributions from Germany, Spain, France, Italy, Netherlands, Finland and Portugal,” IHS Markit principal automotive analyst Ian Fletcher said.

“Domestic demand is likely to have been the driver of this improvement, with fixed investments leading the way. Labor markets are also continuing to improve; unemployment is down in the region, while political risks are continuing to diminish,” Fletcher continued.

“However, future growth could be hampered by consumers becoming more cautious as their purchasing power and real incomes are squeezed by increased inflation and limited wage growth,” he went on to say. “IHS Markit expects that real GDP growth will ease slightly to 0.4 percent quarter-over-quarter in the second quarter and remain there in the final two quarters of 2017, although recent survey evidence suggests that an upward revision to near-growth prospects is more likely than a downward revision.”

More on policy & near-term forecast

Turning back to Fitch’s projections, the firm’s report mentioned the changing impact of fiscal policy on growth in the advanced economies also remains an important factor behind the improved near-term outlook.

The report pointed out fiscal policy began to shift to a mild easing stance from 2016 in the U.S. and the Eurozone after several years of substantial fiscal tightening over 2011 to 2015. Fitch’s analysis of multipliers suggested this shift has had a significant impact on growth dynamics in the advanced economies and seems likely to provide a further boost to growth over the next couple of years.

Demand growth in the larger emerging market economies is recovering strongly in 2017, according to Fitch. Both Brazil and Russia have recently seen a return to positive real GDP growth rates and the latest data suggest consumption and investment is starting to pick up in Russia.

Following very large declines in aggregate demand in the aftermath of sharp falls in commodity prices in 2014, there is now room for demand to recover in large emerging market commodity producers.

“The two key downside risks identified last quarter — Eurozone fragmentation risk and aggressive U.S.-led protectionism — have not gone away but have certainly diminished somewhat in recent months,” Coulton said.