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EUR: VW scandal casting dark cloud over the health of Euro area economies - SocGen

FXStreet (Delhi) – Research Team at Societe Generale, fear that the recent VW scandal is likely to negatively impact the outlook for Euro area economies with Germany in particular.

Key Quotes

“With the information available currently, our baseline remains that while substitution effects will arise, these will mainly benefit petrol driven cars and other brands in Europe and thus leave economic activity in the euro area relatively unchanged.”

“However, the ongoing slowdown in demand in China remains a major challenge. For Germany, the medium-term effects will likely mean even more rebalancing away from net exports, with short-term adverse effects to some extent being counterbalanced by increased service production (car recalls) and additional spending and consumption related to the refugee crisis.”

“In the longer term, the scandal is likely to affect the diesel sector as a whole as regulators work to eliminate the discrepancy between official and real world emission results, but we would expect a gradual adjustment given the importance of other environmental targets (CO2) and the car sector in Europe.”

“For Germany and the euro area car industry, the risk of consumers reassessing diesel technology should be a wake-up call for the industry and policymakers alike to renew policy reform and investment efforts.”

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