Industry Trend Analysis - Populist Policies Will Generate Vehicle Demand - MAY 2017

BMI View: The Romania n government ' s populist stance will benefit both passenger and commercial vehicle sales in 2017 . This is because d emand for PVs and CVs will be generated by increases in the minimum wage and fiscal expenditure that will boost household incomes and increase construction activities.

We believe the election of Romania's Social Democratic Party (PSD) brings with it support for vehicle sales, stemming from the populist stance that they have adopted to regain public support. Some of the policies that have been rolled out include increased minimum wages from RON1,250 (USD291.6) to RON1,450 (USD338.2). Furthermore, they have increased fiscal spending which will be primarily allocated to the transport sector and defence spending (see ' Fiscal Deterioration To Undermine Sovereign C reditworthiness', February 24).

Wage Increase Bodes Well For Passenger Vehicle Sales

We believe the increase in minimum wages will support growth of 9.8% in passenger vehicle sales in 2017 as it will increase gross incomes per household and bolster the consumer's ability to afford a new car. We forecast gross household income to grow to USD12,256 in 2017, which is an increase from USD11,850 in 2016, providing a larger population with the means to own vehicles. Hence, we forecast an average annual passenger car sales growth rate of 6.6% over our 2017-2021 forecast period.

Populist Policies Will Bolster Passenger Vehicle Sales In 2017
Passanger Vehicle Sales And Gross Household Income
e/f = BMI estimate/forecast. Source: National sources, BMI

Increased Fiscal Spending Will Boost Commercial Vehicle Sales

We believe Romania's 2017 state budget will support our 2017 forecast of a 6.3% expansion in commercial vehicle (CV) sales because of the renewed push in infrastructure. The 2017 budget stipulates a 60% increase in transport spending to RON13.76bn (USD3.2bn) to upgrade and maintain national infrastructure. This will increase the demand for new CVs as the new infrastructure projects commence. Our infrastructure team forecasts construction growth to be 3.2% in 2017 and to average 3.5% over our 2017-2021 forecast period which will support demand for new CVs used by businesses involved in these projects.

Increased Infrastructure Spending Will Bode Well For 2017 Commercial Vehicle Sales
Commercial Vehicle And Construction Industry Growth
e/f = BMI estimate/forecast. Source: National sources. BMI