Once more on Volkswagen's impact on growth

HUNGARY - In Brief 01 Oct 2015 by Istvan Racz

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A few days ago, we said that based on then available information, the running Volkswagen case was likely to cut Hungary's real GDP growth by up to 0.5% points over the next 12 months. Then a day later economy minister Varga said it was 0.3-0.6%, although he did not clarify if he meant an annual or a total impact. Then most recently, BofA said that the VW case could shave 1-1.5% off Hungary's GDP growth rate, though it was not immediately clear from Bloomberg's report over what period they thought the impact would exist. Our key observation here is that we still do not have a very good forecast, but at least we know materially more than a few days ago. First, the reader is kindly reminded that, in order to get to BofA's forecast, Hungary's GDP from the broad car manufacturing industry should fall by 10-15%. Given that the VW group has an estimated 40% share in Hungary (including components produced for use by VW, Audi, Skoda and Seat, of course), this either means a 25-38% drop by the VW group, or less if other key players in Hungary also suffer. We find that excessive, as compared to the currently known size of the problem. What we have learned since our last post here at GSD is the following: (a) a long series of Audi types were affected, with a total number of 2.1 million cars, all equipped with Euro-5 diesel engines; (b) essentially all these engines were built in Hungary, as is normally the case with nearly all Audi engines in these days; (c) Audi Hungária does not build Euro-5 diesel engines any more - they stopped the production of this type in 2014; (d) Audi builds gasoline and diesel cars in roughly equal numbers. The conclusion from the foregoing is that Audi ...