Assessing macroeconomic impact on German and euro area economies

The macroeconomic effects VW scam on Germany and the euro area are less clear-cut and depend very much on how consumers react by switching into other fuel types or into non-German and non-euro area brands. 

Analysts assume that for now, until the regulatory framework becomes clearer, the main impact will be a severe blow to the VW diesel brand (due to the admitted cheating), with consumers mostly switching over to other German-made and European cars, as well as petrol cars. 

The VW scandal is likely to tarnish the quality perception of "Made in Germany" more broadly in other sectors. VW employs some 270,000 people in Germany (less than 1% of total employment), so even with a significant decline in production, the economic effects for Germany should be manageable, especially given the already tight labour market, says Societe Generale. 

With one of the highest concentrations of car production in the world, the risks are however high in the event of a more material slowdown in demand for German brands.