A cyclical recovery is underway in the global auto industry, according to a report released Friday by Scotia Economics.

Auto sales in June posted their best performance since last July, after bottoming earlier this year.

Purchases have started to improve in most regions, led by China in the developing markets and Germany in mature markets. Vehicle production has also started to rebound, enabling the auto sector to help drive the global economy towards recovery.

“Global car sales climbed to an estimated 48.0 million units in the second quarter, up from an eight-year low of 43.0 million in the opening months of 2009,” said Carlos Gomes, senior economist and auto industry Specialist, Scotia Economics. “Global economic conditions have begun to stabilize, with consumers becoming more confident and taking advantage of low borrowing costs and competitive pricing. Over the past three economic cycles, car sales bottomed at least one quarter prior to an improvement in the global economy.”

According to the report, China is spearheading the recovery in both the auto market and the global economy. Car sales in China accelerated to a 48% year-over-year surge in June, lifting purchases above an annualized 7.0 million units for the first time on record, and well above the 5.9 million-unit peak reached in March 2008 prior to the sharp global economic downturn.

Other emerging markets are also rebounding, with the exception of Russia, where purchases remain in hibernation. Car sales have recently climbed to record highs in Brazil and India.

In Western Europe, government scrappage programs have led to stronger-than-expected car sales in the first half of 2009. However, the improvement in other indicators has lagged, according to Scotia Economics.

Sales in North America bottomed in the opening months of 2009, and will be buoyed in coming months by the recently implemented “cash-for-clunkers” program in the United States. The legislation provides consumers with trade-in vouchers up to US$4,500 US to buy a new vehicle, provided that their new car gets 10 miles-per-gallon (mpg) better gas mileage than the trade-in model.

Other leading indicators of auto sales, such as used car prices and consumer sentiment are also on the mend in both the United States and Canada, pointing to stronger sales ahead, Scotia Economics said.

“Economic activity is poised to get a much needed shot in the arm from the auto industry revival,” concluded Gomes. “With sales on the upswing and industry-wide inventories back down to normal levels, the re-start of idled auto assembly plants will boost third-quarter economic activity across North America by roughly two percentage points. This represents a sharp reversal from the past nine months, when the economic downturn was intensified by significant auto industry cutbacks.”

IE