- It remains to be seen whether the recovery in EU wood market will be sustained as there are, once again, serious challenges emerging for the European economy due to the second wave of coronavirus infections.
The relative strength of the euro is already creating a headache for the European Central Bank which is becoming alarmed at the impact on export competitiveness of EU27 manufacturers at a time when other factors are weighing down heavily on demand.
Meanwhile, the second waves of COVID infection across Europe have grown to be larger than the first and have led to renewed lockdowns which now threaten a final quarter economic contraction. Assessing the impact of the new lockdown measures is difficult because, unlike six months ago, they are now more regional, or targeted, sector specific and time–limited. However, they are adding to an already uncertain economic climate.
Forward looking indicators show that economic momentum in the EU27 is likely to get worse before it gets better. October registered a third consecutive monthly decline in the Euro Area Purchasing Managers Composite Output Index, down 1.1 points to 49.4 and taking it back into contractionary territory (any score below 50 indicates that a majority of those surveyed recorded a decline in purchasing).
The latest PMI data for eurozone construction is also not encouraging. IHS Markit, who undertook the survey, commented in their 6th October report that “The PMI results for September show that the eurozone construction sector remained stuck in contraction as builders struggled to secure new work amid the COVID-19 outbreak.
The survey pointed to broad-based declines across housing, infrastructure and commercial projects. In line with increases in coronavirus cases, and the potential for stricter restrictions to be imposed, a rebound in the near-term seems unlikely. In fact, eurozone builders remained pessimistic about growth prospects”.
IMF forecasts published in October now suggest that euro area GDP will decline 8.3% this year followed by growth of 5.2% in 2021. Of the largest economies, prospects are strongest in Germany, with a 6% decline forecast for this year to be followed by 4.2% growth next year.
The French economy is forecast to fall 9.8% this year followed by 6% growth next year. Italy’s economy is forecast to fall 10.6% this year and to rebound 5.2% next year. Spain’s economy is forecast to fall even more drastically this year, down 12.8%, but to rebound more strongly, by 7.2% in 2021.
Also in October, the European contractors’ federation FIEC published their annual report which forecast an 8.5% fall in EU27 construction activity in 2020. FEIC said the final months of 2020 would be critical for the industry as new projects were expected to decline during the Autumn.
In a sign of the heightened uncertainty, the FIEC report included no forecasts for next year. However, FIEC warned that “The situation might worsen in 2021 if investments in construction, both public and private, do not recover significantly. Moreover, due to losses in equity during the health crisis, companies will find it difficult to embark on new projects.”
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