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Report from
Europe
Weak growth continues in EU
Over the last 5 years, the words ※flat§, ※stagnant§ and
※slow§ have frequently been used in relation to the
European wood market. At the start of 2016, the situation
has hardly changed. Overall growth in the European
construction sector and wider economy has picked up only
slowly since hitting bottom in early 2013.
The International Monetary Fund (IMF) estimates that
GDP in the 28 European Union countries will grow 2% in
2016, marginally up from 1.9% in 2015. But there is
mounting concern that the world economy will enter a
cyclical downturn before Europe regains the ground it lost
in the financial and euro crises.
Overall there＊s been some convergence in economic
performance between EU Member States since mid-2015.
This convergence is particularly apparent from the
Eurostat Economic Sentiment Indicator (Chart 1) based on
a monthly survey of perceptions and expectations in five
surveyed sectors (industry, services, retail trade,
construction and consumers) in all EU Member States.
Although still positive, over the last six months economic
sentiment has declined in the UK, the one large EU
economy that recovered relatively early from the financial
crises. Meanwhile sentiment has improved sharply in
several countries that were lagging, notably Italy, Spain
and France.
The Eurostat Construction Production Index (Chart 2)
shows that the recovery in EU construction effectively
stalled after March 2015, with activity stuck at only
around 95% of the level in 2010. Construction activity in
France and Italy was at historically low levels in 2015 and
continued to decline throughout the year.
Activity also lost ground in the UK and Poland, countries
which were driving recovery in 2014 and early 2015.
More encouragingly, activity remained robust in Germany,
was rising in the Netherlands and at least remained stable
at a higher level in Spain.
Slight uptick in building permits
The Eurostat Building Permits index (Chart 3), a forwardlooking
indicator, also provides some encouragement that
the workload of the European construction industry will
improve in the near future.
There was an uptick in the level of building permits issued
across the continent in the second half of 2015. This was
particularly driven by a significant increase in building
permits issued in Spain and the Netherlands.
There was also a rise in building permits issued in the UK
and Poland suggesting construction sector growth in those
two countries will resume in 2016. Building permits
remain at a high level in Germany.
Demand for wood products has benefitted only a little
from Europe＊s slow economic recovery in the last three
years. This is evident from the Eurostat index of EU wood
manufacturing activity which covers the sawmilling,
veneer, panels and joinery sectors but excludes wood
furniture (Chart 4).
European wood manufacturing activity remained stalled at
around 97% of the 2010 level between the start of 2014
and second quarter of 2015.
However there was an encouraging uptick in the third
quarter of 2015, with activity increasing in Poland,
Austria, UK, Sweden, and Spain. Rising activity in these
countries during this period was sufficient to offset a
slowdown in Germany and Italy, respectively the first
second largest wood manufacturing countries in Europe.
Wood yet to make significant inroads into market
share of other materials
The stasis in European wood manufacturing activity is a
reflection of the slow growth in the European construction
sector. It also suggests that wood has yet to make
significant inroads into market share of alternative
materials.
Competition between suppliers of different wood products
每 such as between panels and sawn wood and between
temperate and tropical hardwood - also remains intense.
While total European demand for wood products has
remained flat, there are on-going significant shifts in the
source of demand. Markets for sawn wood and woodbased
panels have been particularly hard hit by the
economic downturn and stagnation of the building and
furniture sectors.
The wood veneer sector has suffered profoundly from the
contraction of the southern European joinery
manufacturing industry and has come under intense
pressure from substitute materials and new finishing
techniques across the European continent.
However new opportunities are arising for value-added
engineered and other forms of modified wood products,
particularly in structural applications. The combination of
strong technical performance and reduced overall costs of
construction are the main drivers for uptake of these
modern wood products.
The carbon and sustainability message is a welcome bonus
for those specifiers and contractors keen to burnish their
green credentials. The relatively positive outcome of the
recent Climate Change conference in Paris (see below)
gives some confidence that this latter issue may become a
more prominent driver in the future.
Euroconstruct forecast 3% growth in construction in
2016
At their 80th conference in Budapest in December, the
independent research organisation Euroconstruct projected
that total construction output in Europe increased 1.6%
during 2015. This compares to their more optimistic
forecast of 1.9% growth made at the previous
Euroconstruct Conference in June 2015.
However Euroconstruct is now more optimistic about
prospects for 2016, forecasting 3% growth during the year
(compared to their June forecast of only 2.4% growth).
Euroconstruct also forecast growth of 2.7% in 2017 and
2% in 2018.
Euroconstruct estimate European construction output will
have a value of €1412 billion in 2016, €1450 billion in
2017 and €1478 billion in 2018. This compares to a peak
of €1532 billion just before the financial crises.
Euroconstruct forecast that the construction sectors of all
19 countries represented by the organisation will grow
between 2016 and 2018. They note that during 2015,
growth was particularly rapid in Ireland (+10.6%),
Slovakia (+10.3%), Czech Republic (+7.4%), and the
Netherlands (+6%).
In 2016-2018, annual construction growth is expected to
exceed 7% in Poland and Ireland. However, the five
largest construction markets in Europe 每 Germany, UK,
France, Italy, and Spain - are also expected to grow more
strongly and together will contribute more than two thirds
of the forecast market expansion in 2016.
In recent years, much of the growth in European
construction activity has been in repair, renovation and
maintenance. These activities were responsible for 60% of
the total residential market in 2015.
However, Euroconstruct suggest that much increased
growth in construction activity in 2016-2018 will be in the
residential new build sector. This will be driven by the
massive influx of migrants arriving in Western European
countries such as Germany, the Netherlands, and to Nordic
countries of Denmark, Finland, Norway and Sweden.
Using conservative assumptions, it has been calculated
that in the next three years, excess demand for social
housing will be at least 900,000 people, for whom the
current social housing capacity is insufficient.
Euroconstruct suggest that the non-residential market will
also grow in all 19 Euroconstruct countries during 2016
and that this growth will stall in only two countries 每
Finland and Sweden - in 2017.
Implications of Paris Agreement for forests
The UN climate summit in Paris that ended on December
12th did not deliver on all fronts, providing no guarantee
that the world will avoid the worst impacts of climate
change. However it did produce the most promising
international climate agreement in years.
Critically, the agreement built on initial commitments of
over 180 countries to reduce their carbon emissions and
includes a review clause to encourage countries to increase
their pledges in the near future.
As the only the economic sector to be referenced
explicitly, the Paris agreement also raised the political
profile of forestry and signalled that cutting emissions
from deforestation and promoting sustainable forestry is
now recognised globally as one the most efficient ways to
address climate change.
To make Paris a lasting success, it＊s now important that
the key agreements on issues such as financial support, the
increase of emission-reduction pledges, and Reduced
Emissions from Deforestation and Forest Degradation
(REDD) are further developed and implemented in the
months and years ahead.
The agreement is built on the commitment of signatories
to deliver against ※Intended Nationally Determined
Contributions§ (INDC) to reduce greenhouse gas
emissions. By allowing countries to voluntarily declare
their own commitments, discussions in Paris side-stepped
the serious political conflict created in earlier negotiations
which sought to allocate specific targets for emissions
reductions to individual countries.
The downside of this approach is that, in aggregate, the
commitments made fall well short of what the scientific
community argues is needed to limit the global
temperature rise to 2 degrees Celsius above pre-industrial
levels, the widely recognised threshold for major
economic and environmental disruption.
The upside is that the agreement achieved unprecedented
levels of political support. Close to 150 world leaders were
in Paris to mark the start of the talks and negotiators from
195 countries signed off on the agreement when the talks
ended.
Paris was also significant for the high and positive levels
of business engagement, a testament to the growing
momentum behind global climate policy.
While the INDC＊s in aggregate fall short of what is
required, some national commitments are ambitious and
together they signal that measures to reduce carbon
emissions will be an increasing factor in political and
economic decision-making worldwide in the future.
For example the EU committed to reduce GHG emissions
to 40% below 1990 levels by 2030. China indicated that it
will reduce carbon intensity to 60-65% of 2005 level by
2030, increase the non-fossil fuel in national energy
supply to 20%, and continue to expand forest area. The
United States stated that it would reduce GHG emissions
to 26-28% below 2005 level by 2025.
Many developing countries included action against
deforestation in their INDCs. For example Brazil
committed to ※strengthening policies and measures with a
view to achieve, in the Brazilian Amazonia, zero illegal
deforestation by 2030 and compensating for greenhouse
gas emissions from legal suppression of vegetation by
2030.§
Forestry related measures were also prominent in the text
of the agreement. Article 5 encourages countries to ※take
action to implement and support, including through
results-based payments§ REDD+ activities. It also
explicitly recognises ※the role of conservation, sustainable
management of forests and enhancement of forest carbon
stocks in developing countries.§
The overarching ※decision§ that Annexes the Paris
Agreement recognised ※the importance of adequate and
predictable§ finance for REDD+ activities. Although the
＆rules of the game＊ for REDD+ were already agreed 每 thus
legitimising and ＆regulating＊ REDD+ activities 每 the
political signal of Article 5 is very important. It shows
forest nations that this is a long-term game.
This in turn should give added confidence to continue with
REDD+ strategy and readiness activities.
Several groups of nations used the opportunity offered by
the Paris Conference to launch new forestry-related
initiatives. African nations, with support from NGOs and
the German government, launched AFR100 at the Global
Landscapes Forum during the Paris meeting.
AFR100 is an initiative to restore 100 million hectares of
degraded forest lands before 2030. It is led by ten African
countries: the Democratic Republic of Congo, Ethiopia,
Kenya, Liberia, Madagascar, Malawi, Niger, Rwanda,
Togo and Uganda.
There was also a ※Leaders＊ Statement on Forests and
Climate Change§ issued jointly by the governments of
Australia, Brazil, Canada, Colombia, Democratic Republic
of Congo, Ethiopia, France, Gabon, Germany, Indonesia,
Japan, Liberia, Mexico, Norway, Peru, United Kingdom
and the United States.
The Statement included a commitment to intensifying
efforts to protect forests, to significantly restore degraded
forest, peat and agricultural lands, and to promote low
carbon rural development. It also included commitment to
large-scale implementation of national REDD+ and
sustainable land-use and climate change programs and,
importantly, to generate and reward verified results.
Leaders from developing and developed countries also
launched specific partnerships to help reduce
deforestation. For instance, Brazil and Norway extended to
2020 their partnership to reduce deforestation in the
Amazon Forest and Norway committed new financial
support. Norway, Germany and the UK also pledged to
provide US$5 billion from 2015 to 2020 for REDD+
programs.
Some private sector representatives of the private sector
were also keen to lend their support. The co-chairs of the
Consumer Goods Forum 每 M&S and Unilever 每 issued a
statement that they will preferentially buy agricommodities
from areas that have ※designed and are
implementing jurisdictional forest and climate initiatives§.
Building on their commitment to ※deforestation-free§
sourcing policies through the New York Declaration on
Forests, the two companies said in future they will
preferentially source from jurisdictions that demonstrate
commitment and progress towards an ambitious national
INDC which includes a strategy for reducing emissions
from forests and other lands whilst increasing agricultural
productivity and improving livelihoods.
But perhaps more significant for forest policy than these
statements of intent, was a pivotal reference in the Paris
Agreement to the importance of ※removals by sinks of
greenhouse gas emissions in the second half of the
century§ to rapidly reduce global emissions after they peak
※as soon as possible.§
There was combined with a transparency clause which
makes clear that removals by sinks must be included in
national emissions inventories.
The implication is that forests 每 a vast sink which can be
increased through active management 每 are acknowledged
to be central to the solution of global climate change.
Countries worldwide are also under an obligation to
account accurately and regularly for all the carbon stored
in the vegetation and soils in forests, as well as in
agricultural land and protected areas and in the products of
these lands (such as wood, crops, and biomass).
As this data is collected and analysed, new market
opportunities should arise for sustainable timber products
as it becomes increasingly clear that increased use of such
products is a particularly efficient way to reduce carbon
emissions.
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