MARKET POSITION AND CONSTRUCTION MARKET OVERVIEW

MACROECONOMIC SITUATION IN 2016

According to the European Commission’s latest forecasts1, the eurozone’s economic expansion will reach 1.6 per cent this year and accelerate to 1.8 per cent in 2018, compared with 1.7 per cent in 2016. This steady but moderate expansion should remain driven by domestic demand. The global economy recorded growth of 3.0 per cent in 2016 and is projected to strengthen this year (+3.4 per cent) and next (+3.6 per cent). After difficult 2016, in which the European  economy  had  to cope with numerous international  and domestic challenges including the lowest pace of global and trade growth since 2009, geopolitical tensions, stressed banking sectors, UK’s vote to leave the EU, and a mounting backlash against globalization, has proved to be resilient and has stayed the course of economic growth and job creation. This resilience has been supported by a number of well-known favorable factors, including relatively low oil price, the past depreciation of the euro and a broadly neutral fiscal policy. Private consumption and investments have remained the main growth driver while inflation has returned to the common market and rising debt.


1 Winter 2017 Economic Forecast, EurCom

 

Pfleiderer Group operations are supported by favorable market conditions.
GDP GROWTH IN 2016 AND EST. 2017 (%)
Source: European Commision, European Economic Forecast Winter 2017

The pace of growth in construction investment is, however, expected to have increased in the euro area in 2016 thanks to low mortgage rates and improved access to loans for house purchases. The recent rise in construction output and house prices also supports the expectation that the adjustment in the housing sector is ending. Investment is expected to accelerate somewhat next year thanks to low financing costs, the improving global demand outlook, high capacity utilization, and recovering profit margins. A growing number of projects approved under the umbrella of the Investment Plan for Europe are also expected to move to the implementation phase, boosting both public and private investment. Private consumption was the principal contributor to growth in 2016 and is expected to remain the main growth driver over the forecast horizon. Households should indeed continue benefitting from employment growth and a rise in compensation, whilst increases in house prices are set to generate positive wealth effects. However, the expected increase in inflation will dampen the growth of real disposable incomes. Household saving rates are expected to remain broadly stable as the pass through to savings of past oil price-related income gains should come to an end, while uncertainty could lead to precautionary savings.

Economic growth in Poland in 2016 slowed down versus the previous year and amounted to about 2.7%, with the final quarter of the year being probably the weakest. The slowdown was primarily due to a reduction in investments, which were undermined by low absorption of EU funds in the interim period. Public infrastructure investments were affected in particular, but private investments decreased as well. Economic growth was also undermined by the weakening of foreign trade, which was caused by a somewhat slower global growth. Private consumption was the main driver of growth, supported by favorable labor market situation and payments under the 500+ child benefit program.

2016 was yet another year, characterized by elevated volatility in financial markets. However, since the autumn global financial markets have rediscovered some optimism by improving macro-economic data, a pick-up inflation and expectation of pro-growth policy in the US. In Europe, market perception about economic outlook is improving, asset purchases by ECB are sustained and expectation about US policy have led equity markets to rise.

BUSINESS CLIMATE IN CONSTRUCTION

For the last two years construction business climate indicator in Germany has been growing, hitting record-breaking results at the end of 2016. Moreover, it’s expected to improve further in the months ahead. Expectations of construction business representatives were a little bit less optimistic than assessment of current situation, nevertheless for the most time of 2016 with positive tendency as well.

BUSINESS CLIMATE IN CONSTRUCTION – GERMANY
Source: Ifo

In Poland, for the last two years, business climate in construction is stable. The stability one can see in seasonal changes, repeated every year - prognosis for the future business are always the lowest at the end of the year, as traders are able to predict there will be a decline in their business in the first quarter of the new year (which might be related with awaiting time for the opening of tenders). In the first three months of each year assessment of current business situation is the lowest but it improves with upcoming months.  

BUSINESS CLIMATE IN CONSTRUCTION – POLAND
Source: GUS

MARKET DYNAMIC

Pfleiderer strongly builds its position in furniture and construction market. The last one includes not only building residential and non-residential objects, but also interior design. In terms of product portfolio the refference points are chipboard, laminate, MDF and OSB markets. For the nearest 2 years all those markets shows positive trend.

In case of DACH countries OSB market characterises the highest growth dynamic. Moderate positive change is expected at HPL and MDF/HDF market. In Poland there’s expectation that all product martket will have comparable growth dynamic.

MARKET SIZE DYNAMIC (VOLUME) – DACH
Source: B&L
MARKET SIZE DYNAMIC (VOLUME) – POLAND
Source: B&L

PRODUCTION CAPACITY POSITION IN EUROPE

The  overall  European  particleboard and MDF production capacity  is foreseen  to  increase by around 0.9% in 2016, and remain below the 40 million mof MFP and around 15 million mof MDF. On that market Pfleiderer is one of the TOP 5 player.

PRODUCTION CAPACITY IN EUROPE – TOP 10 PLAYERS X1000 CBM
Source: EPF

CONSTRUCTION MARKETS DEVELOPMENT PERSPECTIVE

Construction business at core markets, in Poland and DACH countries, is expected to grow. DACH market is bigger, Polish market develops more dynamically (at the background of other European countries, Poland is one of most dynamically developing markets). Till 2018 one can expect average yearly growth rate at level of 0.7% for DACH and 4.2% for Poland.

AVERAGE YEARLY GROWTH 2016-2018

CAGR 2016-2017
 
Total
Residential
Non-residential
Poland 4.2% 4.6% 3.9%
DACH 0.7% 0.7% 0.5%
 
Germany 0.6% 0.8% 0.2%
Austria 1.9% 1.9% 2.0%
Switzerland 0.4% -0.3% 1.3%
 
France 3.7% 4.4% 2.6%
Italy 1.4% 0.9% 1.9%
United Kingdom 2.3% 1.8% 2.7%
Belgium 2.1% 1.8% 2.5%
Netherlands 4.9% 6.2% 3.1%

Source: Euroconstruct

DRIVERS OF CONSTRUCTION MARKET

In DACH countries construction market is driven more by residential construction. Opposite to the market is Poland, driven mostly by non-residential buildings.

TOTAL CONSTRUCTION

German language speaking countries markets are based mostly on renovation construction (in residential and non-residential building). In Poland there’s different situation – new buildings takes bigger part of the construction business.

RESIDENTIAL AND NON-RESIDENTIAL CONSTRUCTION
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