Boston, MA -- (SBWIRE) -- 02/21/2014 -- BMI is forecasting weak growth for the South African economy over the medium term based on a slowdown in China and ongoing retrenchment in the gold mining sector. Recent industrial unrest, that looks set to continue in 2014, coupled with poor infrastructure and faltering economic growth has contributed to our bearish outlook for the South African automotive sector.

New vehicle sales closed 2013 on a subdued note with aggregate new vehicle sales for December at 46 501 units, a 0.2% improvement over the corresponding month of December 2012. The December 2013 new passenger car market and light commercial vehicle market both reflected a year-on-year (y-o-y) volume decline of 0.9%. The full year total for new vehicle sales came in at 649,574, up 4.1% on 2012.

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Weak economic growth is likely to dampen domestic appetite for vehicles in the short-to-medium term. We are accordingly forecasting a lacklustre 1.5%% y-o-y growth in vehicle sales, to 659,188 units in 2013, to be followed by an equally moderate 3% y-o-y growth in 2014. On the upside, high levels of investment spending and infrastructural development projects could bolster commercial vehicle sales. Sales of medium and heavy trucks increased 20.3% y-o-y and 53.6% y-o-y respectively during December2013, according to The National Association of Automobile Manufacturers of South Africa (NAAMSA) estimates.

Despite recent industrial unrest we are similarly more optimistic about growth in commercial vehicle production. BMI's long-held view that the local bus industry will be boosted by investment in Bus Rapid Transit (BRT) systems throughout South Africa continues to play out, with more big contracts awarded. Two latest projects will add a combined 174 buses, but more importantly, they will be assembled locally. Additionally, Chinese automaker First Automobile Works (FAW) is looking to start vehicle assembly at its truck plant in Eastern Cape in April or May 2014, FAW trucks and passenger cars Africa project leader, Cheng Zhang revealed. The plant, which is presently under construction, will have an initial production capacity of around 5,000 units a year. We also believe that LCVs will be bolstered by the hospitality and tourism sector, both of which are expected to burgeon over the forecast period.

However, if labour issues continue to persist, investors may be tempted to invest in other developing regional markets, although we do not see this happening immediately. We have already seen the beginnings of carmakers reducing their reliance on South Africa with BMW South Africa adding the port of Maputo in Mozambique to its export operations. While this is initially to cope with the company's increased exports as it ramps up production, BMI believes the move also goes some way to reducing BMW's risk from similar labour action in the transport sector. Meanwhile, major carmakers such as Mercedes-Benz have questioned South Africa's business environment.

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