Volkswagen emissions scandal: Economist warns of potential "sizeable macroeconomic hit"

Chris Papadopoullos
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Germany's car sector makes up almost 20 per cent of its exports (Source: Getty)

The Volkswagen emissions cheating scandal could have a major impact on the German economy, according to new research.

The country's car industry accounts for €380bn, or 20 per cent of all business revenues, according to the report from Dario Perkins, chief European economist at Lombard Street Research.

German cars also make up almost a third all vehicles produced in Europe. If other companies are found to have been up to the same tricks, or consumers lose their trust in German car makers more generally, it would threaten Germany’s growth, which is currently still shaky.

“The automobile industry has been particularly buoyant in recent years, accounting for almost 20 per cent of Germany’s exports. So a sustained slump in German car production could inflict a sizeable macroeconomic hit,” Perkins said.

However, he said it was unlikely to have implications on the health of Europe’s financial sector.

“Beyond the worse case macro impact, it’s a struggle to see this story becoming a threat to financial stability. Sure, the collapse in VW’s share price will weaken the company’s balance sheet, but its total bond issuance – at around €31.3bn – is unlikely to herald a new European credit crisis,” Perkins added.

The scandal, which broke in mid-September, is likely to cause some blushes among German lawmakers.

“There are also wider political considerations, not least the embarrassment the affair is causing Berlin after a period in which EU leaders have been trying to instil German business virtues in the rest of the euro area,” the research said.

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