Germany has seen solid and steady economic growth during the last few years. The climate for consumer purchases in the country has been excellent due to low borrowing costs, record-high employment and pay hikes. In 2018, however, the economic trend became more uncertain as the year progressed, with increasing financial media commentary predicting an end to the boom.
Private consumption weakened over the summer months, with household spending holding back overall economic growth in the third quarter for the first time since 2013. German Ministry of Economy GDP growth forecasts for 2018 were revised downwards twice during the year. First in April from 2.3% to 1.8% and then again December to 1.5-1.6%. In 2019, economic expansion is projected at 1.8 %, a downgrade from the previously expected 2.1%.
The Ministry quoted the trade conflict between China and the US, as well as trade tension between the US and Europe as reasons for the greater economic uncertainty. In addition to the trade disputes, German exporters are also struggling with a more general slowdown of foreign demand as the global economy cools.
The International Monetary Fund also cut its growth forecast for Germany in 2018 (to 2.2%), quoting substantial short-term risks including “a significant rise in global protectionism, a hard Brexit or a reassessment of sovereign risk in the euro area, leading to renewed financial stress”.
Timber sector economic trend
The German wood industry has been growing for five successive years. After growth of 3% in the first half of 2018, the German timber industry association HDH is expecting an increase at a similar magnitude also for the full year. According to HDH, both domestic and export sales were responsible for the continuing growth. The increase in sales was more pronounced in timber products (+5.2%) than wood furniture (+1%).
The boom in recent years was primarily supported by rising construction figures. However, the number of new building permits started to decline in 2018 and growth in sales of construction-related timber products slowed to 2.1% (+5.9% in 2017) in the first half of 2018. The wood-based panel sector grew by 2.5%.
Trade with VPA partner countries
Germany imports a broad product range from VPA countries including sawn timber, hardwood mouldings, sheet materials – in particular tropical hardwood plywood –, furniture and furniture components, as well as some tropical veneer, flooring and decorative products. Generally speaking, the German market for tropical wood products, including from VPA partner countries, has been on a steady decline over the last decade. The remaining markets in Germany concentrate on joinery, windows and exterior constructions, gardening and landscaping as well as marine constructions.
According to the IMM trade survey, traditional markets for tropical wood have been facing severe competition from substitute materials for several years now. Wood Plastic Composite (WPC) decking is taking up more and more market share, although not being cheaper compared to tropical hardwood decking. WPC also replaces African hardwoods in joinery (e.g. door frame components) and has increased its product range to include poles, fences, blinds and other articles. Chemically modified timber also replaces tropical wood in decking, cladding or window frames; and wooden garden furniture is being replaced with plastic “rattan” furniture.
The most important supplier of wood products to the German market among the VPA countries is Indonesia, followed by Vietnam, Malaysia and Thailand. Indonesia delivers mouldings, joinery products and decking, plywood, furniture and furniture components, as well as some sawn timber, flooring and decorative products. Malaysia and Viet Nam supply a similar product range, but the overall volume sold to Germany is smaller. Malaysia supplies more sawn timber than Indonesia, but smaller quantities of further processed goods. Viet Nam and Indonesia are the largest furniture supplier to the German market among the VPA countries.
From the African VPA countries Germany imports primarily sawn timber; the biggest suppliers are Ghana and Cameroon. The overall volumes imported from Africa are small.