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    Europe Reports

    Second Wave of Pandemic Halts Economic Recovery in Europe

    The second wave of COVID-18 in Europe has been more severe than expected so that by late 2020 tight restrictions and even lockdowns were being imposed.

    Sean Milmo, European Correspondent01.11.21
    2021 was expected by forecasters to be a year of strong, prolonged economic recovery in Europe from a COVID-19-induced deep recession.

    However, after a brief rebound in the summer and early autumn of 2020, it became clear by the fourth quarter of the year that the economic revival would be less robust than expected and may even be delayed.

    The outlook for 2021 in Europe has been particularly uncertain for coatings with sizeable decorate paints businesses. Home improvements were one of the few retail sectors which flourished following the onset of the pandemic in the region in March/April. Once people were subjected to stay-at-home restrictions they focused on DIY activities to brighten up their homes.

    In 2021 European demand for decorative paints and most other coatings will depend on the region’s economic performance. This will be determined by the degree of the pandemic’s continued intensity and the impact on the spread of the disease of the inoculation program for the newly developed COVID-19 vaccines.

    The second wave of COVID-19 in Europe has been more severe than expected so that by late 2020 tight restrictions and even lockdowns were being imposed. Some countries were recording higher levels of infection, hospital admissions or death rates from the disease than in the first wave when GDP plummeted by double-digit percentage rates.

    After a rebound in the second and third quarters which slowed the GDP declines, forecasters were predicting GDP growth of 4-5 percent in 2021 but with a lot of caveats.

    The European Commission, the European Union’s executive, expects a 7.5 percent decrease in GDP in 2020 in the 27 European Union member states. A recovery in 2021 will yield 4 percent GDP growth which will drop to 3 percent in 2022, it forecasts.

    By the end of 2021, the GDPs of only two EU states – Ireland and Lithuania – will have returned to the pre-pandemic levels at the end of 2019. The majority of EU countries will have GDPs at or beyond pre-COVID levels by the end of 2022, except for nine states, including France, Spain, Netherlands and Belgium, according to the Commission.

    Several factors, including high unemployment, weak global trade, financial market disruptions and unexpected corporate bankruptcies, could lead to lower than forecast growth, the Commission added.

    The UK’s final departure from the EU, due at the end of December 2020, could bigger than predicted economic upheavals, particularly if the EU and UK fail to agree on a free trade agreement which was still being negotiated in mid-December. 

    The Commission also warns that during the economic recovery stages the effects of COVID-19 will still differ between countries.

    Due to uncertainties about the continued direction of the COVID-19 pandemic, the Frankfurt-based European Central Bank (ECB) which supervises the euro area of 19 EU member states, has put forward two alternative scenarios for 2021. The more optimistic one assumes a successful containment of the virus and a swift rollout of vaccines across the region generating a GDP rise in the currency area of 6 percent with pre-COVID-19 levels being reached by the end of the year.

    The other scenario centers on a delay to the resolution of the COVID-19 crisis so that more economic restraints will lead to only ‘’marginal’’ growth in GDP. By 2023 GDP will still be 2-percent below pre-crisis levels.

    For the coatings sector construction looks likely to be one of the promising growth sectors in Europe in 2021. In the first nine months of 2020 construction output fell by close to 6 percent but this has been one of the lowest decreases in European manufacturing during the COVID-19 crisis, according to figures from the European Chemical Industry Council (Cefic), Brussels.

    Demand for coatings in the sector was helped by the COVID-19-driven DIY resurgence, which has provided not just sales increases for decorative businesses but double-digit rises in operating profits due to a combination of cheap raw materials prompted by low crude oil prices and cost-cutting drives.

    A key question during 2021 will be to what degree will the DIY boom continue once COVID restrictions are lifted particularly if COVID vaccines start to have a positive impact.

    Ironically the more the virus is successfully suppressed by vaccines and non-pharmaceutical initiatives the more the current strong demand for DIY paints and other home improvement products will likely weaken.

    Figures from UK-based Kingfisher, a home improvements stores chain with, in addition to the UK and Ireland, has outlets in France, Spain, Poland and other eastern European countries increased sales of DIY products like paint and other goods by 17 percent in the third quarter. Online sales rose by 152 percent. In the first two weeks of November, the increase in retail store sales dropped to around 12 percent with e-commerce sales rising by 156 percent.

    In a trading update issued on Nov. 19, Kingfisher pinpointed uncertainties about trends in the fourth quarter and into the next year “due to the impact of temporary lockdown restrictions in most of our markets.’’

    Tikkurila, the Finnish regional player in the European decorative paints sectors of Scandinavia and Eastern Europe, including Russia, warned that in the fourth quarter and beyond “restrictions on the mobility of people or access to points of sales might impact customer demand.’’

    Analysts reckon that next year’s growth in construction in Europe will be about the same as that of GDP. Euroconstruct, a network of specialist research institutes, predicts an average 4 percent rise in output in 2021 with the biggest increases in Italy, France and Spain. The UK will partly recover from a 20 percent slump in construction activity in 2020.

    The construction sector in Europe should benefit considerably from national and EU Covid recovery programs. The EU is setting up a €750 billion ($920 billion) stimulus fund, around 40 percent of which will be allocated to ‘green’ initiatives aimed at combatting climate change. This includes residential building projects to make them more energy-efficient with the help of products like insulating coatings.

    Also national and EU recovery money will be targeting assistance for the development and commercialization of green vehicles like electric cars, with money being channeled, for example, into the building of multi-gigawatt battery plants.

    Grants for the expansion of the fledgling electric vehicle sector will put further pressure on manufacturers of internal combustion engine (ICE) cars, which have been struggling with sluggish sales and even lately declining registrations in Europe. In 2020 registrations are expected to have done down by 25 percent.

    BASF, a leading OEM coatings producer in Europe, had to introduce impairment charges in the third quarter because of expectations of only a slow recovery in automobile sales in the region.

    The impairment charges were also necessary because of predictions of a delayed revival of high tech coatings demand in aviation.

    It is these specialty coatings segments that are among those hit the hardest by COVID. Their coatings suppliers will be watching them anxiously for the first signs of a rally in sales
    in 2021. 
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