Tropical Timber Market Report (2021-1-2)

The latest figures showed that the woodworking industry has beaten expectations in 2020 despite the effects of the Covid-19 pandemic. As Asian countries look forward to a road to recovery in 2021, governments and associations look to ways to improve competitiveness. ITTO tells us more.

Malaysia

Commodity sector to benefit from RCEP

Guanie Lim, when interviewed by The Star newspaper in late 2020, said Malaysian commodity industries are likely to be the main beneficiaries of the Regional Comprehensive Economic Partnership (RCEP) as the Agreement removes tariffs on most commodities.

 

Specifically he mentioned palm oil and related products, rubber and wood products including wooden furniture as seeing opportunities as the Agreement will provided greater market access for raw materials and manufactured products.

 

MTIB centre for furniture design

The Star has also reported on an initiative by the Malaysian Timber Industry Board (MTIB) which aims create a design hub to support the domestic furniture industry by bringing together everyone with ideas on designs. 

MTIB plans to establish a new design centre as part of the National Timber Industry Policy Roadmap for Furniture and Timber-based Products 2013-2020.

 

First half exports better than expected

The Malaysia Timber Industry Board (MTIB) has reported on the export performance of the timber industry in the first half of 2020 to see the effects of the Covid-19 pandemic on exports.

The value of exports of all wood products for the first half of 2020 was RM9,601 million some nine percent below the first half 2019 exports of RM10,565.21 million.

The value of Malaysian wood product exports in June 2020 increased 50 percent month-on-month to RM1.9 billion.

However, cumulative exports for the period of January to June 2020 dropped by nine percent.

Sawnwood exports in June 2020 increased both in volume and in value. Cumulative exports for the period of January-June 2020 declined 36 percent in volume and 37 percent in value to 584,869 cubic metres worth RM1.1 billion.

Exports of MDF in June 2020 increased month-on-month in both volume and value to 36,897 cubic metres worth RM55.2 million. Cumulative exports for January-June 2020 fell 38 percent to 278,433 cubic metres and were worth RM380.7 million.

Exports of plywood in June 2020 increased both in volume and value by 31 percent and 26 percent respectively to 116,328 cubic metres however, cumulative exports for January-June 2020 declined by 48 percent to 790,203 cubic metres and by 15 percent in value to RM1.5 billion.

Exports of mouldings in June increased by 48 percent in volume and by 46 percent in value however, cumulative exports for the first six months of 2020 declined year-on-year by 31 percent in volume and 29 percent in value to 83,876 cubic metres worth at RM313.2 million.

Exports of veneer in June 2020 grew month-on-month by 47 percent in volume and 75 percent in value to 2,959 cubic metres and RM6.2 million. 

In contrast, cumulative exports for 2020 January- June compared to 2019 declined in volume by 48 percent to 28,892 cubic metres and in value by 47 percent (RM46.1 million).

Builders Joinery and Carpentry (BJC) exports in June 2020 jumped 21 percent in volume and 19 percent in value to 10,430,859 cubic metres and RM85.4 million month-on-month. Total BJC exports in the first half of 2020 compared to the corresponding period in 2019 dropped 12 percent.

Exports of wooden and rattan furniture for the period of January to June 2020 recorded mixed trends.

President of the Malaysian Furniture Council, Khoo Yeow Chong, writing in the Malaysia Furniture News Oct 2020 (no.12), said the furniture sector is recovering and he continued “statistics provided by the Malaysian External Trade Development Corporation (MATRADE) has shown that the export value from January-June 2020 was RM5.06 billion compared to January-June 2019 at RM4.92 billion, an improvement of 2.9 percent.

He said that while this performance is lower than anticipated “the Malaysian furniture industry remains resilient in the face of adversity under various challenges and restrictions”. One particular success mentioned by Khoo was the increase in exports of wooden kitchen furniture in the first half of 2020.

 

Engineered wood promoted for construction

A Engineered Timber Product Seminar was hosted in Kuching by the Sarawak Timber Industry Development Corporation (STIDC) in collaboration with Universiti Teknologi Mara (UiTM) Shah Alam. 

The aim was to promote and develop engineered wood products for the use in buildings in Sarawak.

At the seminar opening the Assistant Minister of Urban Planning, Land Administration and Environment, Len Talif Salleh, said Sarawak industry needs to forge collaboration with higher institutions as well as research agencies to develop engineered timber products.

Salleh also revealed that the STIDC is collaborating with Woodsfield Glulam Sdn Bhd, a Johor-based company which specialised in producing engineered wood products and has successfully exported its products.

 

Indonesia

Forestry exports exceed 2020 target

The 2020 export target for forest and wood products has been exceeded despite the impact of the corona pandemic on production and trade. Early in 2020 the export target was lowered from US$10 billion to US$7 billion to take account of the anticipated disruption of businesses, however, export earnings in 2020 topped US$11 billion even exceeding the original target.

Bambang Hendroyono, the Secretary General in the Ministry of Environment and Forestry, said the ministry is very proud of the performance of Indonesian forestry sector adding that 2020 forestry export earnings were only five percent below that of 2019. 

He added that government incentives and relaxation of regulations helped achieve this success.

 

Raw material prices undermining competitiveness

According to the Executive Board of the Indonesian Furniture and Craft Industry Association (DPP HIMKI) despite the country having vast forest resources the wood processing sector struggles to make a real contribution to national economic growth because the high price of raw materials undermines competitiveness in the domestic market and international markets.

During a recent online meeting it was concluded that downstream SMEs cannot afford to purchase top quality raw materials so must process low quality wood raw materials which reduces productivity. 

The problem of raw material supply has been raised by Purwadi Soeprihanto, Executive Director of the Association of Indonesian Forest Concession Holders (APHI), who said the growth in wood product processing was hampered by raw material supply and that is why Indonesia has fallen behind Vietnam in terms of competitiveness.

Purwadi said one way to raise the competitiveness of Indonesian furniture products is to accelerate the development of plantation forests.

 

Over 4 million hectares of forest land reallocated

The Minister of Environment and Forestry (MOEF), Siti Nurbaya, said her ministry will support the efforts to restore the national economy in 2021. 

She said Indonesia’s forests can support nature tourism and environmental services. Also, she indicated by changing the allotment of forest such as land for the object of agrarian reform productivity for the land can be increased. 

As of December the forest land reallocation effort has provided around 4.4 million hectares to about 882,072 farmers.

Strategy to encourage the furniture and craft industries

The Indonesian Furniture and Craft Industry Association (HIMKI) prepared several strategies to encourage the national furniture and craft industry in 2020. Abdul Sobur, HIMKI chairman, said the first issue to be addressed should be a sustainable supply of wood and rattan raw materials. 

This, he said, could be achieved with the formation of a state run ‘Rattan Logistics Agency’. Another priority area is the elimination of wood and rattan smuggling.

HIMKI has continued its call for the elimination of the mandatory SVLK for downstream industries saying this holds back the competitiveness of the sector and urges the government to support promotion and marketing of wood and rattan products.

Additional suggestions from the HIMKI include the call for efforts to raise the quality of rattan furniture and craft products which should include training and support for design and advanced technologies.

Finally, Sobur encouraged the government to attract investment in production in areas with adequate raw materials.

 

Myanmar

First ever financial release from MTE

The Myanmar Timber Enterprise (MTE) recently announced consolidated income statements for the three fiscal years from 2016-17 detailing sales, operational cost, taxes, contributions to the state and net profit. This is the first such disclosure in the history of MTE and is a significant initiative from MTE to ensure transparency.

From 1 April 2014 to 30 November 2020 MTE sold 1,864,921 tonnes of teak logs, other hardwood logs and sawnwood earning US$531 million for 414,173 tonnes ofteak logs. 

In addition, MTE sold 925,074 tonnes of logs and sawnwood in local currency earning around US$349 million (approximately equivalent).

 

Myanmar exports plunge

In the last two months of 2020 export earnings plummeted to US$2.647 billion. In the corresponding period in the previous financial year exports stood at US$3.847 billion according to the Ministry of Commerce.

Both sea and border trade dropped as neighbouring countries tightened border security and limited trading to contain the spread of the virus. While agricultural exports increased those of livestock, forest products, minerals, fishery products and finished industrial goods declined. 

To make matters worse the severe container shortage has become the biggest headache for shippers in Myanmar.

In related news, Myanmar’s trade deficit is rising. Between 1 October and 18 December in the current fiscal year, Myanmar’s external trade drastically plunged to US$6.14 billion from US$8.206 billion recorded in the same period a year ago.

The government is trying to reduce the trade deficit by eliminating imports of non-essentials. Myanmar mainly imports essential goods such as construction materials, capital goods, hygiene items and inputs for export manufacturing.

 

Covid-19 impact on wood-based SMEs

The European Forest Institute (EFI) and the Sagawa Institute of Organization Development supported a survey of members of the Wood-Based Furniture Association (WBFA) and the Myanmar Arts and Craft Association (MACA) to assess the impact of the Covid-19 control measures on their production.

Most of the enterprises surveyed are SMEs, the backbone of Myanmar’s economy constituting the vast majority of formally registered enterprises in the country.

The first Covid-19 cases were observed in Myanmar in March 2020. Since then, the Government has adopted measures to contain the spread of the virus including border closures, travel restrictions and stay-home notices. 

The pandemic is severely impacting Myanmar’s economy. To better understand assess the impact on wood-based SMEs a survey was conducted in August 2020.

 

The results indicate:

•Covid-19 forced the majority of enterprises to stop or permanently close their business.

•Covid-19 is having a significant impact on employment and livelihood.

•17 percent of respondents reduced their workforce by 50–75 percent, while 15.6 percent of respondents had to make reductions in the range of 25–50 percent.

•The majority of respondents have no or low access to Covid-19 relief programmes. 

•The majority of respondents face shortages of raw materials.

 

Myanmar has been experiencing a second wave of Covid-19 since 16 August, when the country’s first domestic transmission in a month was reported in the Rakhine State capital, Sittwe. 

Since 16 August, 100,057 Covid-19 cases and 2,126 deaths have been reported in the country. The country only reported 374 Covid-19 cases and six deaths between late March and mid-July.

Cases have been reported in more than 200 townships across 15 regions and states.

 

RECP Trade Deal

According to ‘The Frontier Myanmar’, the existing free trade agreements and longstanding non-trade barriers could limit the Regional Comprehensive Economic Partnership’s (RCEP) impact on Myanmar’ but the country may benefit from increased investment due to improved access to global value chains.

The government said Myanmar’s decision to join the pact is an important development for future economic growth and the country has much to gain the media question what this deal will mean for ordinary people in Myanmar.

 

India

Strong GDP growth in 2021 forecast

The National Statistical Office (NSO), on Thursday, announced its projections for India's GDP in 2020-21, pegging the Indian economy to contract by 7.7 percent, compared to a growth rate of 4.2 percent in 2019-20.

In its latest review the Reserve Bank of India (RBI) has projected an economic contraction of 7.5 percent, an improvement on its earlier forecast of a nine percent plus decline for fiscal 2020.

However, two successive phases of economic contraction in the year drove the economy into and times continue to be tough even though the Purchasing Managers' Index for manufacturing is continuing to claw into positive territory.

The services and agricultural sectors have been supporting recovery and this, along with a proposed increase in government expenditure targeting agriculture as a vehicle of growth, could lift growth prospects higher.

Analysts suggest the future of the Indian economy will also hinge on expanded private investment. Of greatest concern is the financial state of the millions of SMEs in the country as the temporary relief from the government is set to end in the months ahead.

 

Panel makers happy to see resin plant back in operation

To the delight of plywood and panel makers the Haryana State Government has approved resumption of formaldehyde product manufacturing in the factories in the State subject to clearance by the Environment Department.

Within days of the announcement resin products for the wood panel industry dropped sharply.

Plyreporter has reported that the Haryana Plywood Manufacturers’ Association Vice President, Satish Chopal thanked the State Government for this decision. 

 

Home buyers looking for bigger homes

In pre-pandemic days the real estate sector in India had been adjusting to demand for moderately priced and smaller homes but this has changed. Now buyers are looking for and can afford due to low interest rate bigger floor space.

The Economic Times reports that Himanshu Parekh a property adviser in Mumbai as saying people are looking to upgrade to bigger homes due to work from home and for online education and that they can now afford the bigger space housing loan rates are lower now and home prices have eased. Late in 2020 the preferred size for a one-bedroom unit was 500 sq ft up from round 400 sq ft in March 2019.

 

New furniture park planned

The Yamuna Expressway Industrial Development Authority (YEIDA) intends to construct a furniture park and some 15 firms have expressed an interest in opening facilities in the Park.

Rakesh Kumar, Executive Director in the Export Promotion Council, said a furniture park near Jewar airport would help boost exports and encourage furniture and handicraft manufacturers.

 

Vietnam

W&WP export/import in first 11 months of 2020 Exports

In November 2020, Vietnam’s wood and wood product (W&WP) exports were valued at US$1,236 billion, 3.5 percent less than that of October, but 20 percent higher compared to the same month of 2019.

Of this, WP export accounted for US$1,005 billion, 4.8 percent lower compared to the previous month, but 33 percent up as compared to the same month of 2019.

In 11 months of 2020, W&WP exports amounted to US$11,023 billion a 15.6 percent year-on-year growth.

In the first 15 days of December W&WP exports were US$618 million, 20 percent higher compared to the first 15 days of November.

During November 2020 W&WP exports by FDI enterprises were worth US$696 million, up almost nine percent over October and 60 percent up year-on-year. In 11 months of 2020, W&WP exports by FDI enterprises amounted to US$5,395 billion, 28 percent year-on-year higher and a 49 percent share of total W&WP exports from Vietnam.

 

Export destinations

Compared to October, W&WP shipped to top destinations declined. Exports to the US declined by three percent, Japan, one percent, and South Korea, five percent.

With European markets such as the UK, Germany, France and the Netherlands the decline was even greater. In contrast exports to China continued to grow, rising to US$90 million, 13 percent up as compared with the previous month.

The US topped the list Vietnam’s W&WP export markets with a share of almost 60 percent. Over 11 months of 2020, the US market consumed US$6.369 billion, a year-on-year growth of 35 percent. Following the US, the three big consumers of Vietnam’s W&WP included Japan, China and South Korea. 

 

Imports

Following a significant increase in October, November 2020 imports of W&WP into Vietnam were valued at US$252 million, just 1.5 percent over the previous month, but 15 percent higher than in the same month of 2019.

In 11 months of 2020, imports of W&WP into Vietnam totalled at US$2,266 billion, down 1.6 percent year-on-year.

During the first 15 days of December, 2020 W&WP imports amounted to US$156 million.

In November 2020, FDI enterprises imported US$118 million of W&WP, 20 percent higher than the previous month and 60 percent higher than in November 2019. During 11 months of 2020, W&WPs imported by FDI enterprises amounted to US$921 million, 32 percent up year-on-year and

contributed 41 percent of the total value of W&WP imported into Vietnam.

In November, 2020, W&WP imports from China, Chile and Congo increased by 25 percent, 67 percent and 43 percent respectively as compared to the previous month. Conversely, November imports from Thailand, Brazil and Laos dropped sharply compared to October 2020.

Imports from Russia experienced a year-on-year expansion of almost 100 percent. In contrast imports from the US, Brazil, Germany and Malaysia declined compared to the same period in 2019.

 

Vietnam’s forest certification scheme endorsed by PEFC

In late October 2020, Vietnam’s Forest Certificate Scheme submitted by Vietnam PEFC Council Member was endorsed by the PEFC Council General Assembly.

Sustainable Forest management has been implemented in Vietnam since the 1990s. In 2017, the Ministry of Agriculture and Rural Development (MARD) assigned the Vietnam Administration of Forestry (VNFOREST) and the Vietnamese Academy of Forest Science (VAFS) to develop Sustainable Forest Management (FM) and Chain of Custody standards for Vietnam Forest Certification Scheme (VFCS).

In 2018, the Prime Minister of Vietnam approved the ‘Project on Sustainable Forest Management and Forest Certification’ through Decision No. 1288/QD-TTg, in which the Vietnam Forest Certification Scheme (VFCS) was established and operated under Vietnam Administration of Forestry, Ministry of Agriculture and Rural Development.

On 11 January 2019, the Minister of Agriculture and Rural Development issued a Decision to establish the Vietnam Forest Certification Office (VFCO). VFCO is responsible for all activities in terms of sustainable forest management and forest certification and issues national standards and guidelines of the VFCS.

 

The benefits of Vietnam being part of the PEFC alliance lie in the following:

•To manage and use sustainable forest resources, biodiversity conservation; to protect ecological environment and values of forest environmental services; and to promote forest certification in Vietnam to meet the requirements of domestic and international markets.

•To create a legal source of plantation timber in forest areas implemented by sustainable forest management.

•To improve the value of plantation timber and contribute to poverty reduction for people who depend on forestry for their livelihoods, as well as increase the export values of timbers and forest products for the forestry sector.

 

China

Adjusted import tariffs

On 1 January 2021 China adjusted import tariffs on commodities including some of those in the most favoured nation (MFN) category, conventional tariffs and provisional tariffs commodities. This was in response to the various trade deals agreed including the Free Trade Agreement between China and Mauritius.

Further tariff reductions will be made under the free trade agreements China has signed with countries including New Zealand, Peru, Costa Rica, Switzerland, Iceland, Pakistan, Chile, Australia, the Republic of Korea, Georgia as well as the Asia-Pacific trade agreement, the Regional Comprehensive Economic Partnership (RCEP).

Among the changes and in order to encourage domestic demand for imported materials the import duties on more than 100 wood products will be reduced. China will continue to apply preferential tariff rates to goods from the 43 of the least developed countries that have established diplomatic ties with China.

 

New national standard for interior wood doors

According to an announcement by the State Forestry and Grassland Administration a new standard for interior wood door (LY/T 1923—2020) has been drafted and will take effect on 1 June 2021. The new standard replaces the interior wood door (LY/T 1923—2010) which has been in effect for nearly 10 years.

The three concepts of ‘solid wood door’, ‘solid composite door’ and ‘laminated door’ are clearly defined in the new national standard on interior wood door. There are also clear requirements for the quality requirements of wood doors, such as machining accuracy, appearance quality, physical and chemical properties and environmental protection properties (formaldehyde emissions).

 

New national standard on laminated and laminated solid composite flooring

The new national standard on ‘laminated wooden Flooring’ (GB/T 18102—2020) and ‘laminated solid composite flooring’ (GB/T 24507—2020) have been announced and will be effective as 1 July 2021.

The new national standard on ‘laminated wood floor’ (GB/T 18102—2020) is a revision of the GB/T 18102—2007. Part of the product quality technical indicators have been modified, added or adjusted in the new standard to upgrade the standard.

The original standard name ‘laminate multilayer solid composite floor’ (GB/T 24507—2009) was revised to ‘laminated solid composite floor’. Some terms, product classification, appearance quality, specification size and deviation, grade requirements of surface scratch resistance and surface wear resistance, requirements and inspection methods of formaldehyde emission in the GB/T 24507—2009 edition were modified in the new standard and the requirements and inspection methods of surface moisture and heat resistance were added.

The release and implementation of the two new standards will play an important role in standardising the production and trade of wood floor and impregnated paper laminated solid composite floor products, promoting the technological progress of wood flooring industry and upgrading product quality and standards and leading the development of wood floor industry.

According to statistics from the flooring committee of the China National Forest Products Industry Association sales of wood and bamboo flooring enterprises with annual operation revenue of more than RMB20 million in 2019 was 424.6 million sqm of which laminated wood floor was 216.2 million sqm, accounting for 50 percent of total wood and bamboo flooring sales.

It has been estimated that there are more than 500 laminated solid composite floor manufacturing enterprises whose annual sales tops RMB20 billion. These enterprises are mainly in Nanxun City of Zhejiang Province, Changzhou City of Jiangsu Province, Wuhan City of Hubei Province and Linyi City of Shandong Province.

 

US cuts anti-dumping duties on 21 Chinese plywood enterprises

In response to a request from Chinese hardwood plywood enterprises, the US Department of Commerce has reviewed the anti-dumping duties  imposed on 21 Chinese manufacturers and exporters of hardwood plywood and decided to adjust the tariff rates imposed on these 21 enterprises.

These hardwood plywood enterprises now face a 14.95 percent anti-dumping duty rates, a countervailing duty rates of 23 percent and a USTR 301 investigations and duty rates of 25 percent according to the US Decorative Hardwoods Association.

Other Chinese exporters of hardwood plywood did not provide documentation for the application of a separate rate so the anti-dumping duty rate for them remained unchanged at 183.36 percent.

 

Air pollution—Timber enterprises cut or cease production

An orange alert for heavy air pollution has been issued in Lanshan District of Linyi City, Shandong Province and an emergency response to the severe air pollution was implemented on 5 December 2020. 

Emission reduction measures such as restricting or halting manufacturing were introduced. More than 5,000 enterprises have been required to cut or stop production of which 46 are plywood enterprises, 46 particleboard enterprises, 10 fibreboard enterprises and 312 furniture manufacturing enterprises. 

These enterprises release VOCs during their manufacturing processes.

A date for lifting the restrictions has not been announced as this will depend of air pollution measurements.

As limits on production are a regular occurrence during the autumn and winter months when air pollution becomes serious companies have to adjust their production and marketing to avoid losing market share.

In related news, dozens of wood panel enterprises in Hebei Province will also cease production. The affected cities are in the centre and southern parts of Hebei Province such as Shijiazhuang, Langfang, Cangzhou, Baoding, Hengshui, Xingtai, Handan, Dingzhou and Xinji.

 

Serious container congestion at some ports

It has been reported container cargo trains carrying timber from Russia to Manzhouli, Erlian and Alashankou Ports have stopped and this had disrupted the movement of containers and resulted in container congestion at Manzhouli, Erlian and Alashankou Ports.

 

Imported wood bonded processing zone in Wuhan City

The first bonded processing zone for timber in Yangluo Port, Wuhan City, Hubei Province was officially launched and put into operation recently. 

The new Zone handles timber such as scots pine and spruce logs mainly from Russia, Germany and the Netherlands. After processing at the Yangluo Port Zone timber shipments will be transported to enterprises in Wuhan City and other areas.

Imported logs arriving by boat enter the zone quickly through Yangluo Port wharf which reduces the logistics and transportation cost for enterprises. 

Previously, imported logs were transported to Wuhan by rail. While this was fast, the transportation cost per container was around RMB5,000. Imported timber transported by boat to Wuhan City has cut transportation costs.

 

Europe

EU tropical timber trade faces double dip recession

Total EU27 (i.e. excluding the UK) import value of tropical wood and wood furniture products was US$2.48 billion between January and October last year, 12 percent less than in 2019.

This is a significantly higher level of import than forecast earlier in the year when the first waves of the Covid-19 pandemic hit the continent leading to widespread lockdowns with severe implications for the EU27 economy and on the supply side in tropical countries.

However, with the onset of a second wave of the virus, and signs that the EU27 is now experiencing a double dip recession, trade may be receding once again.

Based on the value of EU27 imports of tropical wood and wood furniture products each month during the last five years, while imports fell sharply in May last year, there was a very strong rebound in June and July. 

Although imports declined again in August, they were at a five year high for that month (which is typically very slow during the European summer vacation period), and then recovered well in September.

With the easing of lockdown measures from May onwards and boosted by the introduction of large government stimulus measures, the economy picked up across the EU27 in the third quarter.

According to Eurostat, seasonally adjusted GDP in the EU27 increased by 11.5 percent during the three-month period.

The rebound was almost sufficient to offset the 11.3 percent decline in EU27 GDP in the second quarter of 2020.

During this period, EU27 imports were given a boost by the relative strength of the euro on international exchange markets, the euro-dollar rate rising sharply from a low of 1.06 in March to 1.22 by the end of the year.

The dollar’s weakness is due to political uncertainty during and after the presidential elections and the continuing severity of the pandemic in the US.

 

Renewed signs of stress in the EU27 economy

A slight dip in EU27 tropical wood product imports in October is more worrying as it coincides with renewed signs of stress in the EU market in the last quarter of 2020.

The second waves of Covid infection across Europe during the winter months have grown to be significantly larger than the first waves last year leading to renewed and more widespread lockdowns.

According to the Oxford ‘stringency index’, which records the strictness of ‘lockdown style’ policies to limit the spread of Covid-19, since mid-October most of Europe has been subject to restrictions as severe as those imposed in the first lockdown between March and June last year. 

The expectation is that these renewed measures will be in force in most European countries at least until mid-February and probably much longer.

Meanwhile, the relative strength of the euro is creating a headache for the European Central Bank which has become alarmed at the impact on export competitiveness of EU27 manufacturers at a time when other factors are weighing down heavily on demand.

Bloomberg Economics estimates euro-zone GDP fell 1.5 percent in the last quarter of 2020, bringing the decline for 2020 as a whole to seven percent. Bloomberg Economics now expects another 4.1 percent decline in eurozone GDP in the first quarter of 2021. Two consecutive quarterly falls is the formal definition for a recession. 

The Bloomberg forecast, therefore, implies that Europe is in the grips of a ‘double dip’ recession following the downturn already recorded in the first two quarters of 2020.

However, there have been sizable divergences among EU member states. Germany has benefited from its greater reliance on manufacturing, with factories staying open while government-mandated lockdowns shut non-essential shops and much of the hospitality sector. 

Bloomberg Economics says Europe’s biggest economy probably managed to post some growth in the fourth quarter and may have avoided the ‘double dip’. 

Economists polled by Reuters in the first week of January now expect German economic growth to come in at minus 5.1 percent for the whole of last year.

European countries like France that are more reliant on services have been hit harder. The French central bank reported that the economy likely contracted by four percent in the final quarter of 2020, which would confirm a previous estimate that the economy shrank by nine percent last year.

Forward looking indicators show that economic momentum in the EU27 is unlikely to pick up pace in the first quarter of 2021. The IHS Markit Eurozone PMI Composite Output Index rose from 45.3 in November to 49.1 in December.

However, a score below 50 indicates that a majority of those surveyed recorded a decline in purchasing during the month. Services were the principal drag on economic output, with activity here falling for a fourth successive month in December. Manufacturing remained the principal bright spot of eurozone economic performance, expanding for a sixth successive month and at a faster rate than in November.

The latest PMI data for eurozone construction is also not encouraging. IHS Markit, who undertakes the survey, commented in their 6th January report that “Eurozone construction companies reported a continued downturn in activity during December, while incoming business also fell at a solid, albeit softer pace. Concerns surrounding the longer term impact that the pandemic will have on the wider construction sector, alongside a lack of new projects in both the public and private sector being bought to tender resulted in an extension to the pessimistic outlook held by eurozone-based builders for a fifth month in a row”.

IHS Markit noted in relation to individual countries that “France and Germany continued to report further declines in construction activity, with the former signalling the steepest fall since May. Italian firms on the other hand registered marginal growth for the first time since September.”

Most economists now predict that it will be the second quarter that a recovery in the EU economy ultimately gets under way. Looking positively, the bounce-back could be sharp, at least initially, once restrictions are eased and infections subside, as more of the population is vaccinated.

Pent-up demand could see a chunk of the hundreds of billions of euros of consumers’ involuntary savings being unleashed. By the second half of the year, the EU’s unprecedented 1.8 trillion-euro (US$2.2 trillion) recovery fund and multi-year budget should be supporting growth.

Rate this item
(0 votes)
  • Last modified on Monday, 28 June 2021 06:18
  • font size

FDMAsia About Us

For almost 30 years, FDM Asia has been the publication of choice for woodworking professionals in Asia Pacific, providing the latest news and expert insights of a diverse range of topics including process technologies, furniture production, panels manufacturing, raw materials handling and sustainability issues.

We have one of the most comprehensive woodworking database and e-media programme to assist you in your e-marketing and give you an exclusive opportunity to connect to our 25,152 online subscribers.