Monday, April 02, 2018 8:10 AM /BMI Research
BMI View: An easing of inflation, drop in borrowing costs and improving prospects for the Mozambican economy will help drive a slow and steady recovery in passenger vehicle first registrations in 2018.
We forecast Mozambique's passenger vehicle first registrations (which include new and used cars) to recover slightly in 2018, expanding 1.2%, and reaching a total of around 33,000 units, following the downturn witnessed between 2015 and 2017. Macroeconomic pressures in the form of high inflation and elevated borrowing costs have crippled the Mozambican autos industry in the last few years (see 'Poor Consumer Outlook Will Keep Car Sales Down', November 25 2016) and we believe that as these headwinds ease in 2018, the prospects for growth in both new and used car purchases will improve.
Our Country Risk team believe that the Mozambican economy has emerged from the worst of the crisis that followed the 'hidden debt' revelations and expect lower inflation, currency stability, increases in coal production and ongoing investment in infrastructure to help buoy economic activity over the coming quarters (see 'Economy To Recover But Only Slowly', November 28 2017). We therefore expect a recovery in domestic demand as economic conditions brighten to translate into a slow and steady acceleration in local car sales.
Cooling Inflation to Bolster Consumer Spending
We expect the continued easing of inflationary pressures to help bolster consumer spending power in Mozambique. Inflation fell rapidly to 7.2% in November 2017, down from a peak of over 26.3% in October 2016, and our Country Risk team expects inflation to average 6.5% in 2018, down from an estimated average of 14.6% in 2017 (see 'Central Bank To Remain Cautious Despite Rapid Disinflation', November 27 2017). As inflation cools, we expect to see household spending rise over the coming quarters, which is reflected in our Country Risk team's forecast for private consumption to grow 5.5% in 2018, up from an estimated 5.1% in 2017. We expect this to contribute to a rise in spending on both new and used car purchases.
Lower Borrowing Costs Bodes Well For Auto Loan Demand
As inflationary pressures subside, our Country Risk team expects the Bank of Mozambique to slowly ease monetary policy over the course of 2018. We therefore expect to see interest rates end 2018 at 15%, down from an estimated 20% in 2017. We believe that a combination of lower borrowing costs and recovering economic activity will help to spur growth in consumer appetite for credit, translating into more willingness to take on loans for vehicle financing activities.