FX Macroeconomics
times, Europe grows slowly and the institutionalization of ordo- liberalism warns of a protracted period of slow growth ahead. Second, Europe is on the cusp of significant demographic changes with a number of countries poised to experience declining as well as aging populations. Third, there is a shift in the global division of labor and auto production is moving east. While Italy, Spain and France have seen sharp declines in their auto output
for more than a decade,
output in the Czech Republic and Slovakia has grown 3-fold in the past 10 years and now produce more than France. Slovakia, incidentally, has the highest auto output per capita in the world.
Reports suggest that Russia has a
The US also suffered from excess capacity in the auto sector. The bankruptcy of General Motors and Chrysler and the near-death experience of Ford, helped spur on an industry restructuring. It included the closure of capacity. All three are now operating
growing domestic market and is set to surpass Germany. Romania is poised to surpass Italy in auto production. Italy’s auto factories are operating near 40% of capacity. The older and less efficient capacity is in the euro area. Moreover, with high levels of unemployment and weak economies, Italy, Spain and France have indicated that they will not tolerate any more rationalization of the European auto industry - plant closings - at their expense.
profitably and operating near 90% capacity. They are being cautious about adding capacity, according to industry reports. The normal summer this year.
shutdown was foregone
It remains, however, a very fluid situation. First, other producers, such as German and Japanese companies are expanding production. Second, the US capacity is not just in the US, and some foreign producers are expanding output in Mexico that can be exported to the US duty free under the terms of NAFTA. Third, replacing older capital stock with new often boosts capacity. Fourth, productivity has risen by nearly 40% since 2000, according to industry reports.
Europe grows slowly and the institutionalization of ordo- liberalism warns of a protracted period of slow growth ahead
62 FX TRADER MAGAZINE October - December 2013
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