The lockdown in Europe caused a drastic slump in the region’s GDP in the first half of this year, particularly in the second quarter when economists expect that output will have dived in some countries by over 20 percent.
Now the coatings sector and its customer industries like construction, automobiles, machinery and electrical and electronic equipment are facing the prospect of navigating their way during the rest of this year and in 2021 through recovery from a deep recession. Hopefully, this will be achieved without the loss of millions of jobs and thousands of businesses.
Some coatings companies in Europe are better placed than others to emerge from COVID to take advantage of opportunities to bolster their market positions during the recovery.
On the whole, the large multinationals active in numerous markets inside and outside Europe have been faring better during the pandemic than SMEs which are dependent on local or regional customers.
This is despite the availability of a variety of emergency government schemes across Europe to provide grants, loans and subsidized wages to support companies of all sizes, but especially SMEs, during the crisis.
Some small companies have been so pessimistic about their chances of surviving the pandemic that they have turned down government-backed offers of cheap loans.
The European Commission, the Brussels-based executive of the European Union, predicts that the EU’s total GDP will fall by almost 7.5 percent this year, after a recovery in growth starting the summer.
This follows a 3.25 percent decline in output in the first quarter in the eurozone and an estimated 12.25 percent plunge in the second, according to the Commission’s Spring 2020 European Economic Forecast. The 19-member euro area, which includes all Europe’s major economies except the UK, now a non-EU state, accounts for the majority of the EU’s GDP.
Next year the economies of the EU 27 member states, excluding the UK which has now officially departed from the EU, will bounce back to a growth of around six percent, according to the Commission. This will still mean that by the end of 2021 total EU GDP will be below the level of 2019.
As a result of the economic uncertainties caused by COVID, coatings trade associations and companies have abandoned any attempt to make forecasts for the year.
“Overall, it is difficult to make any serious forecast for our market at all,’’ said Christoph Maier, head of the business and finance department at the Association of the German Paint and Printing Ink Industry (VdL).
AkzoNobel, which has a strong presence in both Europe and Asia, particularly China, has set aside, at least until the end of the year, profitability targets linked to cost-cutting and other programs. This is despite a 31 percent increase in operating income in this year’s first quarter, during which it recorded a five-percent reduction in revenue due mainly to the COVID crisis.
“In response to significant market disruption resulting from the COVID-10 pandemic, we have paused key parts of our transformation and suspended our 2020 financial ambition,’’ the company said in an investor update on the first-quarter results.
“Due to significant market disruption resulting from the COVID-19 pandemic, we have paused key parts of our transformation and suspended our 2020 financial ambition,’’ the company said in an investor update on its first quarterly results.
Most of Europe’s manufacturing sector had not been forbidden by legislation to operate during the lockdown, imposed across much of the region in March. Instead, they had to stop production because of other restrictions and safety rules.
In the automobile sector, whose parts, components and exteriors are a major outlet for industrial coatings, car plants closed because of a collapse in demand, scarcity of parts from key sources like China, quarantines and stay-at-home policies which reduced staff and restrictions on cross-border transportation of goods
In construction, another leading customer sector for coatings, central and regional authorities took a tougher line with the opening of sites because of the greater need for safety protocols, covering issues like social distancing and hygiene.
In the coatings sector itself, the major constraints on production during the lockdown have been a sharp downturn in demand and difficulties in raw material supply chains.
A big impetus behind the return to work after the easing of the lockdown in the coatings downstream value chain has been the issuing by governments of guidance on COVID-secure safe working conditions, especially with social distancing. Also, employers have been thrashing out agreements with their employees on safety protocols which can be applied to specific plants or sites.
This guidance and protocols have been helping to revive the construction sector which in terms of coatings value chain involves the largest number of workers extending from coatings production to the application of paints by small teams of painters and individual decorators.
‘’There has been pent-up demand for painters to decorate residential homes but there was no clarity about how this was to be done in compliance with the COVID safety rules,’’ explained Neil Ogilvie, chief executive of the UK Painting and Decorating Association (PDA).
‘’Now the UK government has published guidance on how painting and other work should be done safely in people’s homes,’’ he continued. ‘’Our members can now do work in homes with the assurance they are doing it safely.’’
The other sector likely to revive relatively quickly is industrial coatings, spurred by a recovery in the automobile industry. ‘’The industrial coatings sector is vital for many of our members and seeing the automotive companies restart production will be a real boost for them,’’ said David Park, public affairs manager at British Coatings Federation (BCF).
For the German coatings industry, an upswing in industrial coatings demand is particularly important because it relies on automotive and other engineering customers. ‘’We are hoping for an economic recovery in all sectors, but especially in the area of industrial coatings, which has been hit hard,’’ said a VdL spokesman.
But the big fear in the European industry is that recovery after the COVID lockdown will be derailed by a second wave of the pandemic.
The return to growth will depend on COVID remaining under tight control.
“Despite a temporary success in stabilizing the spread of the infection – a second pandemic wave can undo the onset of the economic recovery at any time,’’ said Maier.