TORONTO, June 29, 2011 /CNW/ - Global vehicle production bottomed in May, and will continue to strengthen in coming months, re-energizing global economic activity, according to the latest Global Auto Report released today by Scotia Economics. Japan and other nations in Asia, such as Thailand, as well as North America will be the main beneficiaries of the rebound in global vehicle assemblies.

"We estimate that rising vehicle output will add at least an annualized 0.5 percentage points to global GDP growth in the third quarter," said Carlos Gomes, Senior Economist and Auto Industry Specialist for Scotia Economics. "This represents a full percentage point reversal from the second quarter soft patch, when supply chain disruptions forced automakers to slash production."

The impact of rebounding vehicle output will be greatest in Asia, which accounts for two-thirds of overall production by Japanese automakers. In particular, autos account for roughly three per cent of overall economic activity in Japan, and rising assemblies are expected to add an annualized 1.5 percentage points to the nation's third-quarter economic growth.

The impact will be even greater in Thailand, where the auto industry represents 15 per cent of manufacturing activity and six per cent of overall GDP. In addition, Japanese automakers account for 85 per cent of the overall vehicle output in Thailand. According to the Federation of Thai Industries, Japan's largest automaker resumed production in late May, and has been operating at 90 per cent of capacity throughout June. Other Japanese automakers also resumed production in Thailand earlier this month. As a result, from June to August, vehicle assemblies in Thailand are expected to jump 30 per cent above the March-May period. The report estimates that this rebound in assemblies will add at least an annualized five percentage points to Thailand's GDP growth in the third quarter - the largest contribution throughout the world.

In North America, automakers are also gearing up to boost third-quarter production 18 per cent above a year earlier.  This represents a sharp acceleration from the slowdown in the April-June period, when supply chain disruptions limited North American assemblies to an annual rate of only 12.4 million units, down from 13.3 million in the opening months of 2011. We estimate that third-quarter vehicle output in North America will climb to roughly an annualized 14.0 million units - the highest level since mid-2008, prior to the sharp fall-off in global economic activity later that year.

"Canadian plants will be among the major beneficiaries from higher output in the July-September period," noted Mr. Gomes. "Vehicle production in Canada is expected to jump 21 per cent year over year in the third quarter, compared to only a three per cent gain in the first half of 2011. This outperformance reflects the fact that two big Japanese automakers typically account for 36 per cent of overall Canadian vehicle output, a much higher share than Japanese assemblers garner in either the United States or Mexico. Nevertheless, improving vehicle production throughout the region will add roughly an annualized percentage point to third-quarter GDP growth across North America.

"Aside from the ramping up of production in North America to rebuild inventories as fast as possible, Japanese automakers are also shifting more vehicle assemblies to the region," concluded Mr. Gomes. "This reflects a strong yen which is hindering their export competiveness from Japan, as well as a desire to diversify their production in light of ongoing concerns over Japan's near-term electricity supply."

And finally Europe - especially the United Kingdom and the Czech Republic - will also benefit from rising Japanese vehicle production in the third quarter. However, robust global demand for luxury European models will be a more important driver of a five per cent year-over-year increase in third-quarter vehicle assemblies across the region.

Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.