Bank Austria Economics sector report:
Wood processing industry should weather the crisis well
- Production down by 3.5 per cent in 2008, sector sales contracted by 5 per cent
- Short-term outlook still bleak
- But: long-term prospects still good thanks to competitive strength and climate debate
Austria's wood processing industry will not emerge from the economic downturn unscathed, but will not bear any lasting scars. This is the core finding of a current sector report prepared by Bank Austria Economics. The reasons for this relatively optimistic outlook are the sector's strong dependence on construction activity, which accounts for as much as 85 per cent of domestic and foreign sales, and the industry's generally high competitive strength. The start of the economic slump in Western Europe already triggered turbulence throughout the wood market in 2008. Wood processing output fell by roughly 3.5 per cent, timber prices fell by 9 per cent and wholesale prices for wood and semi-finished wooden goods fell by roughly 2 per cent. Taking the lower product prices into account, sector sales fell by at least 5 per cent to EUR 7.4 billion.
Over the short term, the decline in output and sales will intensify. Order levels for wood processing companies and production expectations in the wood industry have deteriorated dramatically in the first quarter of 2009. In addition to flagging domestic demand, the sector is also being hurt by lower demand from Western Europe, the destination of 70 per cent of all cut wood exports and 60 per cent of other wood products exported from Austria. "All in all, wood exports are estimated to have contracted by roughly 6 per cent in terms of volume and 8 per cent in terms of value to EUR 1.9 billion last year. And sales will fall further in 2009," said Bank Austria economist Wolf. The situation is especially problematic in Italy, the destination for one third of all cut timber and wood products, where investments in housing construction fell by 5 per cent in 2008 and are projected to fall by at least 6 per cent again in 2009 after adjustment for price effects.
Over the past several years, the wood processing industry has enjoyed above-average increases in demand. Sector sales surged by 50 per cent between 2003 and 2007, outpacing even the industry average of 41 per cent. "During these years of high growth, especially sawmills and veneer and board manufacturers seriously ramped up their investments and achieved healthy increases in productivity and competitiveness," says sector analyst Günter Wolf. When viewed in terms of value added per employee as adjusted for labour cost differences, the productivity of Austrian wood processing companies is at least 10 per cent above the EU-27 average.
Even if the short-term prospects for wood processing companies are rather dire, the sector will come out of the recession without lasting scars. The expected downturns on key markets will likely be mitigated by the planned economic stimulus measures, which are intended to stabilise construction demand and to promote building renovation work. Wood is also regaining importance as an energy source. A key to the sector's growth is its competitive strength. Over the long term, the wood processing industry can even top its average nominal growth rate of 5 per cent per year (the same rate as the economy as a whole).
"Because of the current discussion on climate change, lawmakers are also providing positive impetuses for the wood industry," said the report's author Günter Wolf. For example, an EU programme was initiated in 2002 to sustainably increase per capita wood consumption in Europe by 4 per cent by 2010, at a rate of 1 per cent growth per year. The consumption of cut wood and wooden boards already increased by 2.7 per cent per year in the EU-27 from 2003 to 2007.
Enquiries: Bank Austria Press Office Austria
Tiemon Kiesenhofer, Tel. +43 (0) 50505 ext. 52819
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