Industry Trend Analysis - Construction Sector Rebound Will Reinitiate Growth In CV Sales - MAY 2017

BMI View: Signs of a turnaround in Greece's construction industry will provide the much - needed support for commercial vehicle sales to return to positive growth in 2017. The growth , however , will experience significant downward pressure stemming from weak consumer confidence and low fixed capital formations over our forecast period.

The forecasted return of positive growth in the construction industry will bode well for Greek commercial vehicle (CV) sales, which is forecasted to follow the trend of the construction industry and return to positive growth in 2017. We forecast CV sales to return to positive growth of 2.9% in 2017 after experiencing a contraction of 1.7% in 2016 and we forecast average growth of 3.0% over our 2017-2021 forecast period ( see chart below).

Construction Growth Will Pull CV Sales Back To Positive Growth
Commercial Vehicles Sales
f = BMI forecast. Source: ACEA, BMI

Construction Growth Will Support CV Sales

The growth in the construction industry stems from public-private partnership (PPP) investment into infrastructure along with assistance from large-scale projects initially supported by EU funding. Our infrastructure team forecasts the construction sector to return to positive growth of 1.3% in 2017 and average 2.9% over our forecast period. The turnaround of the construction industry comes after nine years of contraction and the return to positive growth will underpin CV sales over our forecast period as renewed demand for CVs grows from the increased construction activity. The significant growth in construction will occur later in our forecast period as regulatory hurdles and project delays are overcome. The Elliniko mixed-used development project and the construction of the Trans Adriatic Pipeline will be the drivers of construction industry growth ( see ' Trans Adriatic Pipeline Construction Starts', May 19 2016) .

Infrastructure Projects Will Generate Industry Growth To Underpin CV Sales
Greece Construction Industry Value
e/f = BMI estimate/forecast. Source: Eurostat, General Secretariat of National Statistics

Weak Consumer Sentiment Will Put A Damper On Consumer-Driven CV Sales

Despite positive forecasted growth in both the construction and CV sectors, weak consumer confidence coupled with low fixed capital formation will be a strong headwind for further growth in CV sales. Greece's retail confidence index (RCI) and construction confidence index (CCI) for February 2017 were recorded at 1.9 and -59.7 respectively, which are decreases from 12.9 and -45.3 in January 2017 ( see chart below) . This low RCI and CCI score will diminish new CV acquisitions because the low retail confidence will reduce demand for goods and services, holding back road freight transportation. Moreover, the large negative CCI will prevent recovery in residential construction, limiting the growth forecasted for CV sales.

Low Retail And Construction Confidence Will Erode CV Demand
RCI & CCI (Feb 2015-Feb 2017 )
Note: Consumer confidence on a scale of -100 to 100, where -100 indicates an extreme lack of confidence, 0 indicates neutrality and 100 indicates extreme confidence. Source: Eurostat

Furthermore, weak growth in fixed capital formation stemming from low business confidence and capital controls in Greece will hinder CV growth over our 2017-2021 forecast period. We forecast fixed capital formation to grow 0.5% in 2017 and average 2.4% over our 2017-2021 forecast period. This weak growth will continue to prevent investment in CVs as businesses will be cautious about investing in capital assets.

Slow Growth In Capex Will Drag On CV Growth
Fixed Capital Formation
f = BMI forecast. Source: BMI, Eurostat