Central Europe Timber: Deep Recession, EUDR Impact

European Timber Industry Navigates Economic Headwinds

The Central European forestry, sawmill, and wood processing industry is experiencing significant macroeconomic turbulence, according to an assessment presented at International Wood Day. Approximately 300 international industry decision-makers, economists, and association representatives gathered to hear an analysis of the sector's challenges.

Following historic booms and record profits in 2021 and 2022, driven by global construction demand, subsequent monetary tightening by central banks has plunged the European construction sector into one of its most severe post-war crises.

Gunter Deuber, Chief Economist of Raiffeisenbank International AG, provided a detailed economic overview, highlighting the need for extreme flexibility and resilience from companies amidst a deepening industrial recession, a depressed construction sector, and regulatory hurdles such as the EU Deforestation Regulation (EUDR).

Regional Economic Divide and Construction Slump

The European economic area shows a drastic geographical and sectoral divide. While some economies in Southern and South-eastern Europe, including Spain and parts of the Balkans, are experiencing moderate growth due to robust service sectors and EU recovery aid, the continent's industrial core remains mired in a deep recession.

Germany's persistent structural weakness is a particular concern, as it traditionally acts as an economic engine for the entire Alps-Adriatic and Central and Eastern Europe region. When this engine falters, Central European sawmills, panel manufacturers, and timber construction companies feel immediate effects.

Although the slump in private and commercial construction activity in Germany and Austria has mathematically bottomed out, there are no signs of a noticeable recovery, with building permits at historic lows and residential construction cancellations remaining common.

Consumer Spending and Private Homebuilding Challenges

Economists at Raiffeisen Research do not anticipate a rapid V-shaped recovery, projecting that a return to the overall economic output level of 2022 will be a protracted, multi-year process, sustainably reached only gradually over 2026 and 2027. For the timber industry, this means sawmill capacity management and discipline will remain crucial survival factors.

A central focus of the analysis was a pronounced "consumption paradox" in Austria and Germany. Despite recent collective bargaining agreements leading to noticeable increases in real wages and nominally more disposable income for households than two years ago, this income is not reaching the retail or construction sectors.

Instead, savings rates remain at historically high levels, reflecting collective uncertainty. This directly impacts private home construction, which has historically been a reliable main customer for sawn timber, roof trusses, glulam, and interior finishing products.

Financing Shifts and Asia's Market Position

The lack of broad private demand for home construction is exacerbated by increased construction costs, unclear political frameworks for building energy regulations, and strict lending guidelines. Many families are postponing or abandoning home-building projects, and this gap cannot currently be compensated for by public or commercial construction.

Although the European Central Bank (ECB) reversed course after steep interest rate hikes in 2022–2023 and initiated cuts, this does not signal a return to cheap money. The ECB aims to settle key interest rates in a "neutral range" that neither excessively stimulates nor significantly inhibits the economy.

For Asian manufacturers and suppliers of timber products, this prolonged downturn in a major global market like Europe could intensify competition and exert downward pressure on international pricing for items such as sawn timber, glulam, and wood-based panels.

Asian buyers should monitor global supply dynamics and pricing trends as European producers may seek new export markets.