00:44 GMT06 July 2020
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    The European auto market is showing signs of a possible rebound, while the Eurozone's broader manufacturing sector has improved this year after contracting in the last weeks of 2018; experts believe these developments could see the EU return to sustainable GDP growth later this year.

    Kristian Rouz — Car sales across the EU posted their smallest drop in six months in February, with sales across the largest national markets rising. Economists see it as a sign of a possible acceleration of broader economic growth in the Eurozone and the EU.

    This encouraging news comes after Eurozone industrial production unexpectedly rebounded in January. The European Central Bank (ECB), meanwhile, unveiled plans to launch additional stimulus this year, boosting investor appetite for European assets.

    According to a new report from the European Automobile Manufacturers Association (EAMA), new car registrations declined only 0.9 percent last month. Auto sales in the UK, Germany, and France increased for the first time since last September, but dropped a stunning 8.8 percent in Spain.

    The report might suggest that the European auto market has absorbed the risks posed by the tightened emissions rules introduced last September, which prompted a sharp drop in car sales at the time. While reflecting the negative effect of environmental regulations on consumer demand for manufactured goods in general, the drop in car sales in Europe is largely seen as temporary by many experts.

    "It's encouraging to see market growth in February, albeit marginal, especially for electrified models." Mike Hawes, Chief Executive at UK's Society of Motor Manufacturers & Traders (SMMT), said. "Supportive, not punitive measures are needed, else ambitions will never be realised."

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    The SMMT said 81,969 new cars were registered in the UK in February, a 1.4-percent year-on-year increase, with a massive 34-percent rise in the registration of alternative-fuel models and a 0.9-percent rise in sales of zero-emissions cars.

    Economists say the EU's most recent emissions regulations contributed to a drop in Germany's industrial output at the end of 2018, nearly triggering a recession in the Eurozone's economic powerhouse.

    However, a separate report from Eurostat found that the Eurozone's industrial output rebounded in January, expanding 1.4 percent, compared to a 0.9-percent drop the previous month. In most sectors and member-states, industrial production showed sustainable growth — except Germany, where auto producers such as Volkswagen are still struggling to cut costs and boost throughput efficiency amid new regulations.

    "Expectations of a structural rebound in industrial output remain alive, as the downward drag from temporary factors should fade out over the coming months," Bert Colijn of the Dutch bank ING said.

    However, year-on-year industrial output still dropped 1.1 percent that same month, which is still an improvement compared to a 4.2-percent contraction in December. Meanwhile, Germany's output dropped 3.4 percent in January and 3.2 percent in December.

    This data has sparked calls for additional ECB stimulus; the central bank was planning a normalisation in its policies amid robust Eurozone growth last year, but has since opted to review its plans.

    "We are in a period of continued weakness and pervasive uncertainty. The near-term growth outlook will be weaker than previously anticipated," ECB President Mario Draghi said.

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    Nonetheless, the ECB has recently ended its bond-buying programme. The Frankfurt-based monetary authority is now considering reductions to its 2.5-trillion euro bond portfolio, although signs of economic weakness across the euro area will likely delay such plans.

    In light of recent reports, some economists say the Eurozone and the EU could return to a sustainable path of economic expansion later this year; particularly so, if Brussel achieves a Brexit deal with the UK and strikes a free-trade deal with the US. The latter would greatly reduce the risks facing German carmakers, while the former would provide reassurances to the EU financial sector.

    "Overall, the data offers some reassurance that the industrial recession is not deepening. But with the business surveys suggesting that output continued to fall in February, it is too soon to sound the all clear," Andrew Kenningham of Capital Economics said.

    Experts also believe the ECB would have to deepen its stimulus policies to avoid a Eurozone recession this year in the event of a 'no-deal' Brexit and an elongated trade standoff with the US.


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    trade, economy, Car, US-China trade war, ING Bank, European Automobile Manufacturers Association (ACEA), Europe
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