The automobile industry accounted for about 2.7 million jobs in the EU in 2018. This amounted to 8.7% of the total manufacturing employment. The chart below shows the share of direct automotive employment in total manufacturing by member states of the EU and the UK. The industry accounts for the highest percentage of manufacturing jobs in some of the East European countries such as Czech Republic, Slovakia, Romania and Hungary.
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Source: ACEA
Lockdowns are necessary to control the spread of Coronavirus. But lockdowns have a huge economic cost. In the short term, lockdowns tend to adversely impact economic growth. However the short-term pain is nothing compared to the long-term economic growth that awaits. In addition, lives are also saved with stringent lockdowns. Countries that have understood this basic and fundamental concept have fared well during this pandemic. Countries that dithered or foolishly wanted to have economic growth and control the virus with leaky lockdowns or no lockdowns are paying a heavy prices not only in economic cost but also with thousands of deaths.
For example, China’s economy grew by an astonishing 4.9% between July and September while the US is projected to have a growth rate of -3.5% in 2020. The lockdowns in the US were very different to the lockdown in China due to political and cultural difference between the countries.
With that brief introduction, the following chart from an IMF report shows that tougher lockdowns lead to severe economic declines.
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Panel 1 of Figure 2.1 shows the correlation between the stringency of lockdowns during the first half of 2020 and the decline in GDP relative to pre-pandemic forecasts. The figure illustrates that countries that implemented more stringent lockdowns experienced sharper GDP contractions.
Figure 2.1 thus provides suggestive evidence that lockdowns tend to have a negative short-term economic impact. Nonetheless, these findings should be interpreted with caution given omitted variable concerns that affect cross-country analyses and endogeneity concerns about lockdowns. The decision to deploy lockdowns is indeed not random; rather, it may reflect time-invariant country characteristics that also affect economic outcomes. For example, countries with higher social capital may not require stringent lockdowns—as people take greater precautions against infecting others—and could also better withstand the economic impact of the crisis. This may generate a spurious negative correlation between the stringency of lockdowns and economic activity.
Source: World Economic Outlook, October 2020: A Long and Difficult Ascent, IMF
The below chart from FT shows that countries that were unable to control the virus have suffered suffered the most economic pain. Countries such as the US, UK, Spain, etc. have suffered sharp GDP declines while East Asian countries such as Vietnam, China, Korea, etc. have no economic declines or very low decline.
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Source: Covid-19: The global crisis — in data, Financial Times
East Asian countries are beating the Coronavirus while Western countries are struggling to control it even after 9 months. Recently a current US administration official even said “We are not going to control the pandemic” effectively surrendering to the virus. The reason for the stark difference in controlling the pandemic between the East Asian and Western countries are many to say the least. Below is an excerpt from an article at the state-run China Daily:
So what is the secret of China’s recovery, and are there lessons for other economies as they continue to struggle to control the disease itself?
As the first country to confront the crisis, China was the first to be forced to adopt measures to contain it at a time when some leaders elsewhere in the world were confidently predicting it would not affect them.
The Chinese measures included stringent lockdowns and controls on movement, part of a response coordinated by the country’s centralized epidemic response system.
Memories of the SARS epidemic of 2002 had prepared the public for the strict measures needed to combat the new disease. Other countries with longer times to prepare for it delayed their response and allowed emerging infections to run out of control.
“Commitment to the greater good is engrained in the culture,” according to Gregory Poland, head of vaccine research at the Mayo Clinic in the United States, referring to the Chinese response.
“There is not the hyper-individualism that characterizes parts of the US and has driven most of the resistance to the countermeasures against the coronavirus,” medical journal The Lancet quoted him as saying.
In China and other Asian countries, measures such as mask-wearing were accepted as common sense rather than topics for political debate.
A study co-authored by Xi Chen of the Yale School of Public Health calculated that swift measures taken by China in February may have prevented 1.4 million infections and 56,000 deaths.
Ironically, it is those countries that were reluctant to shut down normal activities for fear of the economic impact that are now paying the greatest economic price.
Source: Some struggling to learn pandemic lessons, China Daily
With that said, I came across the below video at The Journal that discussed why East Asia is winning and the West is losing the fight against the virus:
The European Union(EU) is the one of the major exporters of passenger automobiles. In 2019, 5 million cars were exported by the EU worth €124.6 billion according to ACEA. The top market for European cars was the US followed by China and Japan.
Destinations for European Union Passenger Car Exports by Unit Volume:
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Destinations for European Union Passenger Car Exports by percentage:
Source: ACEA
The auto industry is one of the important and major industries not just in the US but also in Europe as well. The European auto industry is recovering slowly this year from the effects of the pandemic. In September, the EU passenger car market registered the first increase of the year with registrations increasing by 3.1% relative to last September according to ACEA. The chart below shows the motor vehicle production by country in 2019. Motor vehicles include passenger and commercial vehicles. In total 185. million vehicles were produced in 2019.
In the passenger car segment, Germany was the top producer followed by France and Spain.
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Source: European Automobile Manufacturers Association (ACEA)
One way to profit from growth of European auto industry is by investing in Auto Parts suppliers. I have written many articles on this topic before some of which are listed below:
For the complete list of auto parts stocks trading on the US markets, you may also want to check out:
