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Germany's economy could 'stifle' UK growth next year

UK growth could be stifled next year if European economic powerhouse Germany goes into recession.

According to accountants Grant Thornton, the Euro zone crisis is threatening Germany’s export sector, which has provided the foundation of its strength since the introduction of the Euro.

Daniel Taylor, Grant Thornton head of automotive advisory, said: “If Germany does go into recession, it will be very damaging to the rest of Europe’s confidence and business sentiment.”

Taylor believes the recovery in Europe will be a long time coming – new car sales are at their lowest levels for 17 years, and recent analyst reports suggest further falls next year, with sales not returning to pre-crisis levels until 2020.

In the UK, Grant Thornton believes that car market will not better 2008 levels until 2015, and even then be around 200,000 units fewer than pre-crisis levels. The SMMT recently revised its own forecasts.

Taylor said: “Any recovery will be long, but also, bearing in mind European factors, fragile.

“Restructuring of dealer networks is continuing in the UK to reflect market conditions and to position brands for sustainability.

“Renault was the first to really take steps to right-size their network, with plans to cut the network from 200 to 140 by next year firmly in train. No other manufacturer has announced such aggressive structural changes, but in time this will be unavoidable for some.”

Recent data reviewed by Grant Thornton suggests that average registrations per franchised outlet have fallen from 460 in 2002, to around 420 in 2011.

But that average hides a huge range in movements for certain manufacturers, with some experiencing a 50% drop in registrations per outlet, a clearly unsustainable position.

Taylor said: “The shape of the industry will continue to change across the value chain - all stakeholders need to adapt to remain viable and ensure survival. In all likelihood there will be a gradual transition to a new steady state - within that transition however will be pockets of turmoil for those that cannot adapt rapidly enough.”

Grant Thornton has just published its October update report which can be downloaded here.

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