New car registrations are expected to stagnate in 2008. The downturn follows a buoyant 2007 in which European motor vehicle production "expanded dynamically", according to ACEA, the Brussels-based manufacturers' association.

The contribution of the motor vehicle industry to economic growth in the 27 European Union counties was positive and sustained through 2007, ACEA says in its latest economic report.

Automotive production expanded "dynamically" (+5.3 per cent) and reached 19.7 million cars, trucks and buses.

More than 80 per cent of the 16 million cars registered in Europe in 2007 were produced by ACEA members. Diesel-powered cars accounted for 53.3 per cent of total new car registrations in the EU and demand is likely to remain stable this year.

"The car industry provides jobs to more than 2.3 million people and indirectly to another 10 million in the EU27. Europe is the world's largest vehicle producer. Of the 50 million cars produced globally, a third is manufactured in the EU."

Vehicle production increased by 5.3 per cent in 2007, with cars accounting for 87 per cent of the total, 5.5 percentage points higher than 2006.

The truck sector saw "particularly solid growth" (+15 per cent) thanks to booming demand, and production of light commercial vehicles rose by two per cent.

New EU member states reported a 25.2 per cent growth in automotive production and accounted for 15 per cent of total EU motor vehicle production and 17 per cent of passenger car production by the end of 2007.

Demand for new vehicles in Europe rose by 1.8 per cent in 2007, mainly thanks to mounting new passenger car registrations in the new member states and a continuous boom on the European commercial vehicle market. Nearly 16 million new cars were registered, 92 per cent of them in western Europe.

"Buyers' confidence and the demand for new cars in Western Europe were restrained by soaring oil prices, changes in taxes, the global credit crunch and declining purchasing power," report says.

"In the new EU member states, where car density is still much lower, a steady growth was recorded throughout the year (+13.9 per cent). Thriving European and foreign demand for new commercial vehicles resulted in a 6.8 per cent growth in truck registrations.

"The European market ended the year with 7.1 per cent more vans, 5.1 per cent more trucks over 3.5 tonnes and 4.4 per cent more buses and coaches registered.

"Of the main markets, only France and Germany are expected to register more cars than last year. This will, however, not offset a decline in most of the remaining EU15 countries." The European car fleet is highly concentrated in five main markets (Germany, Italy, France, UK and Spain) and is characterised by a high diesel penetration (30 per cent). In terms of car density, the ratio of cars to population was 0.5 in Western Europe with every second citizen owing a car.

In Eastern Europe this figure is one out of five. On the mature and saturated west European market, car demand stems mainly from replacement whereas in the new EU members there is still large room for new customers.

The report states: "The European economy remained quite dynamic in 2007 despite torments on the international financial markets.

"The so far healthy GDP growth rates in the EU27 and euro area (2.7 per cent and 2.9 per cent, respectively) are nevertheless likely to be affected in the short term by a shrinking credit availability, soaring food and oil prices and a volatile economic performance of the US.

"Taking into account a negative impact of the summer 2007 credit crunch, the growth forecasts for 2008 and 2009 have been set by the European Commission at around 2.2 per cent in the euro zone and up to 2.4 per cent in the EU27.

The US (+2.2 per cent) and Japanese (+2.1 per cent) economies grew slower than the EU in 2007. Their economies are likely to be even less dynamic in 2008 (US 1.7 per cent, Japan 1.9 per cent) but are expected to recover in 2009.