GLOBAL ECONOMIC OUTLOOK STILL CHALLENGING
The global economy accelerated sharply in late 2009 and early 2010, as the world began to drag itself out of the recession. Although recent economic data points to more subdued economic expansion during 2010 and 2011, this is not unexpected given that the growth spurt in late 2009 was largely driven by fiscal stimulus as well as the need to replenish depleted inventories. In mature markets, prospects for a stronger recovery in 2011 will be dampened by tough employment conditions, weak consumer confidence, high public and private debt as well as lacklustre private investment. China continues to lead the way in the emerging world, but government measures to cool the economy and deflate asset price bubbles, combined with weak import demand from Europe and the US, should push Chinese GDP growth back to single-digit levels in 2011. According to IHS Global Insight, global GDP growth will slow to 3.3% in 2011 compared to 3.7% in 2010.
LIGHT VEHICLE SALES EXPANDING RAPIDLY
Global light vehicle sales have been surprisingly robust in 2010 and are on track to break through the 70-million-unit barrier for the first time, an increase of over 12% on 2009 levels. For 2011, we expect growth to slow to 6% as markets begin to normalise. Almost 90% of 2010 sales gains have come in emerging markets where BRIC countries (Brazil, Russia, India and China) have led the way, but sales in the Middle East, Africa and South America have also expanded significantly during 2010. In 2011 all BRIC countries should continue to show positive growth, with sales in Eastern Europe also expected to post modest gains following two consecutive years of decline during 2009-10.
In mature markets, sales in North America and Oceania have expanded significantly in 2010, with incentive-driven sales in Japan also lending support. However, following generous and long-running European vehicle recycling incentives last year, the effect of pulling sales forward into 2009 has led to a payback effect in 2010, with Western European sales expected to end the year down 4.5% compared to 2009 levels. For 2011, we expect Western European sales to grow by just 1% as the market continues to suffer from a very weak economy combined with continued, albeit diminishing, payback effects from 2009’s recycling bonanza.
EMERGING MARKETS DRIVE GROWTH IN CONSTRUCTION
The construction equipment industry has successfully grasped opportunities in industrialising emerging markets. Strong demand in these markets is compensating for the slow recovery in mature markets, where the gradual withdrawal of government stimulus combined with weak private investment has dampened sales. Construction equipment sales in North America will expand by 5% in 2011 compared to a 6% gain in 2010, due to slow residential construction and potential government spending cutbacks as stimulus starts to dry up. Sales in Western Europe should rise 4% this year and a further 12% to 100,000 units in 2011. However, this will still be a far cry from 2007’s peak levels of over 200,000 units. Eastern Europe is literally on the road to recovery, driven mainly by highway construction projects, whilst sales in Russia, Ukraine and Kazakhstan are still weak but showing signs of recovery. In China, sales expanded by 78% during 2010, but we should see a demand correction in 2011 as the government tackles the property bubble. The outlook for Brazil and India remains very positive. Demand for mining equipment will expand further in 2011, and although macroeconomic factors could impact demand in the short term, longer-term fundamentals continue to improve and drive a positive outlook for commodity markets.
POSITIVE OUTLOOK FOR FARM EQUIPMENT
Both short- and long-term demand drivers are boding well for farmers and farm machinery sales next year. Soft commodity prices should remain high in 2011, boosting farmers’ incomes in countries not affected by drought, flooding and locusts. In the US, farm sector earnings rebounded in 2010 and will rise further in 2011, leading to a 4% increase in tractor sales next year. The Western European tractor market remains on a long-term downward trend. In 2010, sales are estimated to be down 15%, but positive fundamentals should lead to a modest recovery in 2011. In Australia, after strong pre-buying in 2009 due to government support measures, tractor sales fell off a cliff during 2010. Since then, the market has normalised. With no new government stimulus, only the prospect of a good winter season is buoying industry expectations, and sales should grow by 4% in 2011. Brazilian tractor sales are booming, and are expected to be up around 35% for 2010 as a whole. In 2011 we expect a further 8% growth. High tariffs are restricting imports of farm machinery to Russia, forcing foreign manufacturers into local assembly. Since Russian government policies are stimulating demand and production, tractor sales are on track to grow by 5% this year, despite severe drought. For 2011, tractor sales should expand by a further 12%.
PCTC FLEET ADJUSTMENTS CONTINUE
The Pure Car and Truck Carrier (PCTC) fleet declined in size for the first time in history during 2009, as vessel recycling exceeded new vessel deliveries. The drive to remove older tonnage has continued in 2010, with over 40 vessels recycled during the first 8 months of the year, and further vessels are earmarked for removal during the rest of 2010. With 116 vessels in the current fleet aged over 20 years, there is significant scope for further downsizing of the fleet. From a peak of more than 90 idle vessels in mid-2009, almost all idle tonnage has been either reactivated or recycled, and the gap between supply and demand is closing. 72 new vessels will join the fleet during 2010 as a whole, and a further 63 new vessels will be delivered in 2011.