2024-05-07 02:38:07
Indicators promising recovery
According to Vaidas Žagūnis, a member of the board of Citadele bank and head of the Business Banking Service for the Baltic States, the dynamics of the wood and furniture sector has a significant impact on the overall results of Lithuanian manufacturing. According to the data of the State Data Agency, in 2023 companies in this sector produced 17 percent. from the entire Lithuanian manufacturing industry production. However, the wood and furniture industry recently stood out not only for its great importance to the indicators of the Lithuanian industry, but also for its large production contraction: in 2023 the production volume of the wood industry shrank by 24 percent, and that of the furniture industry by 14 percent.
in 2024 for both the wood and furniture industry should be noticeably better, and the latest data from the State Data Agency already show that these sectors are climbing out of the peak of the recession rather quickly. The peak of the production crisis in the Lithuanian wood industry was reached exactly a year ago, when the decline in production volumes reached 31 percent, and in the furniture industry – in 2023. in June, when the decline in production volumes reached 18 percent. (in both cases, a 3-month moving average is calculated).
The latest data on wood and furniture production contrast strongly: in February, after a 15-month hiatus, annual production growth in the wood industry was already positive and reached +1 percent. In the furniture industry, the decline in production continues – in February it was 3 months. the moving average of the drop in production was -7.4 percent, but this is noticeably less than in 2023. in June. In February, the pace of output decline in the furniture industry was the slowest since 2023. January.
Not just good news
According to V. Žagūnis, the recovery of production in the wood industry and the slowing decline of production in the furniture industry should not be confused with the recovery of demand in the markets of Western Europe and Scandinavia, on which the indicators of the Lithuanian wood and furniture industry largely depend. A strong focus on the sale of previously produced and unsold production had a significant impact on the recovery of the sector.
Stock level balance in the wood industry in 2023 reached +29 points at the end, when in 2024 in April it already reached -6 points. A similar situation in the furniture industry: in 2023 in December, the balance of the stock level reached +19 points, and in April of this year it was negative and reached -3 points. A negative inventory balance means that the majority of the wood and furniture industry companies surveyed by the State Data Agency already record an insufficient inventory level – the current inventory level of previously produced products is no longer sufficient to meet demand, and the insufficient inventory level encourages manufacturers to increase production volumes. Therefore, according to V. Žagūnis, we have increasingly improving production trends both in the wood and furniture industry, especially in the wood industry where production has already started to grow.
However, it should be understood that the rapid fall in inventory levels in the wood and furniture industry is not a panacea and brings not only good news, but also bad news for manufacturers. The positive news is that wood and furniture manufacturers were able to quickly empty warehouses and normalize the production trajectory. However, the data shows that the inventory level is decreasing sharply, which means that the producers probably got rid of the inventory by selling their products cheaper than the cost of production – such a sharp decline in inventory will bring financial losses to Lithuanian wood and furniture manufacturers.
Recovery will be determined by consumers
“In order for the Lithuanian wood and furniture sector to move to a more sustainable recovery, the reduction of the inventory level alone will not be enough – the recovery of demand for long-life products in the main export markets is also needed. I assess this aspect cautiously – despite the impending decrease in interest rates in the euro zone, I do not yet see a significant recovery in consumption: the light is already visible at the end of the tunnel, but for now consumption stagnation is predicted in Europe”, says V. Žagūnis.
It is a positive thing that the opinion of euro zone consumers about the financial situation is rapidly improving after the slowdown of inflation. In April, for example, eurozone consumer opinion about the financial outlook reached its best level in 26 months. and has already reached the long-term average. Another positive aspect – in April, the intentions of the residents of the euro zone to spend money on large purchases also reached the highest level in 25 months. and are already higher than when the European Central Bank started raising interest rates.
However, this progress should be welcomed with caution, as the same polls show that eurozone consumers’ opinion of the economic and labor market outlook has recently worsened. Therefore, no significant recovery of consumption is seen yet. Most likely, the consumption of durable goods in the euro area will move from the dead point in 2024. at the end – 2025 in the first quarter, when the rate-cutting cycle kicks in, consumers will fully rebuild savings lost during the energy crisis and feel the impact of falling interest rates on their finances.
2024-05-07 02:38:07