World Furniture Outlook 2017; from left: Sara Colautti (CSIL), Massimo Florio (CSIL), Stefania Tomasini (Prometeia).
The growth of the sales, after the end of the Great Recession, is undergoing a certain slowdown, connected to the worsening global economy climate. Let’s see more in detail what has emerged from the CSIL World Furniture Outlook for 2017, presented during the classic appointment in Milan, on November 25, 2016, this year moderated by Massimo Florio. The session was attended by the most qualified representatives of the economy, especially of the furniture sector. The general macro-economic framework was introduced, as usual, by Stefania Tomasini, Prometeia, and followed by the intervention of Sara Colautti, by CSIL, who explained the situation of the furniture market in the world and in Italy.
The World economy
Data show that the World economy in 2016 was growing at a rate of 2.8%, 0,2% down respect to the 3% in 2015.
The slowdown happened due to the weakness of more industrialized countries, with the USA at + 1.5%, Euro countries at + 1.6%, while the emerging countries proceed steadily at + 3.7%.
For the next three years, it is expected that the industrialized countries will recover a bit, maintaining a 1.6 / 1.7% increase, while the less mature economies will grow by 4% or more.
The macroeconomic situation is improving in areas hit very hard by the crisis, like Brazil and Russia, and indicators show a stabilization of the growth in China, and a steady growth in India.
Although in the latter part of the year the economy has given signs of recovery, in general, we can not deny that the world is experiencing a reduction of the global trades, due to several concurrent factors, including the trend of the return of protectionism, and the re-shoring, another trend in the process of consolidation.
As a result, the international trade of manufactured goods in 2016 underwent a new, sharp slowdown, with a growth of 1.7% only, expected to rise in 2017 by 2.5% in real terms. Only in 2018-2019 the volume of trade is going to move above 3%.
Although a new, slight depreciation of the currency could promote export, for 2017, the domestic demand will be the main driver of the furniture economy inside the Euro zone; however, there are many unknowns weighing down on this geographical area in 2017, from the Elections in Germany, France and the Netherlands (with populist and protectionist parties on the rise) to the Brexit still to be implemented – all important factors that will affect the European economy in the near future.
The Italian economy
After a rather good start of the year, the third quarter saw a sharp decline, but the end of the year shows new signs of improvement.
It is predicted therefore that the GDP growth will grow by about 0.8/0.9% for the next three years – 0.8% in 2017, 1% in 2018 and 0.9% in 2019.
It is obvious that the rate of growth is going to be lower than the Euro Area average, and several are the factors which weigh down on this figure. Despite the economic context becoming a little “more favorable” (Best Conditions of access to credit and subsidies Tax), the investments in machinery and equipment are struggling to take off in 2016, while the automotive industry has already taken off.
In the three years examined in the CSIL Report (2017-2019), the situation will improve slightly, promising a growth of private consumption, although at a lower levels than that of 2016, supported by an increase in income of families available in real terms despite the appearance of early signs of inflation, and facilitated by a positive contribution from fiscal policy.
But the economic situation is still very weak, with the construction sector particularly proving troublesome.
Exports probably will be in decline, because of the World Economic slowdown and protectionism, but the Report provides for a substantial balance throughout the forecast horizon, thanks to the slight recovery of imports.
The Italian economy is still struggling to see a true recovery, with our country losing export quotas even in our strongest sectors after the Great Recession. The tightening of bank credit and the lack of flexibility in tax policies are still factors that are in the way to a full recovery.
The furniture sector in the world
A simple comparison between 2016 and 2015 gives the idea that something has already changed, for the worse. The 2016 world consumption of furniture valued at producer prices (i.e. excluding the markup for the distribution) is about 395 billion US dollars. In 2015, it was 455 billion US dollars.
Another important fact is that China, the biggest exporter of furniture, which in the last six years has more than doubled its exports, rising from 25 billion in 2009 to 53 in 2015, according to preliminary estimates, has undergone a sharp decline in 2016, stopping at 49 billion (which still make up 36% of total exports of furniture, but correspond to a decrease of 6%).
The other major exporters, Germany, Italy and Poland, have continued to grow in 2016; Italy is back to 8% of the world total, the same as in Germany (although in 2007 it held a share of 11.8%), Poland stands at 7%, and Vietnam 5%; the large exporters reach 64% of total exports of furniture in the world. The furniture importers are the United States (with a share of 26%), Germany (11%), the UK (6%), France (6%), Canada (5%), which together account for 53% of furniture imports. For 2017, the consumption growth will still be contained, below 3%, except in the Asia-Pacific region, but this situation is affected by the uncertainty of the international situation.
Foreign trade of furniture forecasts for 2017 are for a 1% reduction in current dollars of the amount of international trade, with a stable outlook also in 2018.
The Italian export
Despite this general uncertainty, the export of Italian furniture in 2016 has showed a gain of 2%, consolidating a market share of 8% of the total world export: a positive result achieved due to the depreciation of the euro, but also due to the ability of Italian companies to diversify in the markets, while maintaining a good level of competitiveness thanks to product innovation.
Because of the international slowdown, we did not get to the same levels of 2015, but the production of the industry is still estimated to close the year with an increase of 1.5%, also thanks to the recovery of the domestic market, due in part also to the furniture bonus package stimulus by the Italian Government.
Seen in more detail, the Italian export is still directed mostly to the European Union, with a 56.3% share to the EU 28 and the remaining 46.7% to the rest of the world. Among the countries most devoted to Italian furniture, we see France in first place (14%), followed by Germany (13.8%) and the United Kingdom (10.2%); the United States account for 9%, Switzerland 5.1%, Russia 5%, Spain 3.3%, China 3.1%, the Emirates 2.5%, and Saudi Arabia 2.5%.
In the first nine months of 2016, China has made a great leap forward in imports (+ 29%); the United States has had a steady increase of +8.2%; and the UAE +10.9%. On the other hand, however, Russia has experienced a decline of -18%, and Saudi Arabia of -33%. With these data available, CSIL expects the Italian exports to grow by 1.8% in 2017, due to a recovery in demand from the Middle East, while Russia is going to persist in its difficult moment. However, there are still large areas where Italian companies can expand, particularly in Asia-Pacific, one of the most interesting areas of the moment, which will record a growth of 4% per annum from 2017.
The furniture market in Italy
The internal market in the last year finally showed some growth, although weak (1.3% in real terms), thanks to the support measures put in place by the government: particularly useful proved to be the “Furniture Bonus”, a mass measure developed also thanks to the intervention of Federmobili. Initiatives like the Furniture Bonus, the Young Couples Bonus, and a spontaneous increase in demand due to an increase in disposable income of +2.3%, have allowed domestic furniture consumption to recover a little bit, letting distressed retailers pull a sigh of relief.
The growth of household consumption, although contained, and the good export performance, let CSIL predict that the sector’s production will close the year with an increase of 1.5%. The 2017 will be a year with many uncertainties, including the stagnation in growth of international trade, an Italian growth that will not exceed 1%, and a slowdown in the growth of disposable income of households, half of that recorded in 2016.
But the Stability Law for 2017 contains elements of support to people spending, but currently it can be assumed that they will be unable to drive the consumption higher than what was recorded in 2016. Even so, the sum of exports and the domestic market for 2017 provide that the production will increase by 1% in real terms.
A more positive scenario is outlined for the 2018-2019 biennium, when the Italian economy will grow at a rate of around 1%.
The engine of growth is going to be the domestic demand, while the external balance will remain basically stable.
The income from work will continue to grow between 1.6% and 2.6%, and household spending will settle in 1% annual increases. Domestic demand will also benefit from the recovery in residential investment and a decline in the unemployment rate.
For the furniture sector, CSIL predicts a new internal market growth of around 1.3% on average, supported not only by the above mentioned elements, but also from the replacement needs that cannot be postponed longer, and from a housing market recovery. The positive forecasts are also confirmed by data released by Acimall (Association of Italian manufacturers of woodworking machinery and accessories), which, after a clearly positive 2014 and a 2015, in the first nine months of 2016 have seen a real boom, which leaves hope for closing the year with an increase of over +20%.
If these forecasts are confirmed, we would truly hope to be the beginning of a new cycle, in which things will not return to the situation we had before, but will evolve anyway, even if in more complex, different directions.