Tropical Timber Market Report

The global market is affected by economic uncertainties such as the trade war between China and the US, and the imminent Brexit. Southeast Asian countries are bracing themselves for the changes ahead, especially with new traction on the implementation of the certification programs. ITTO tells us more about the happenings around the global wood market




Optimism high that 2019 wood product exports will be a record

The government has reported that wood product exports for the first five months of this year were up just over two percent year-on-year. 

Based on this performance it is anticipated that exports for the full year could exceed the RM22.3 billion recorded last year. 

Last year, the wood products sector contributed 1.6 percent to national GDP.


Forestry laws under review

Tengku Zulpuri Shah Raja Puji, Malaysia's Deputy Minister of Water, Land and Natural Resources said that the government is reviewing the current forestry laws and will consider suggestions on amendments that would strengthen forest protection.

In August, environmental activists lobbied demanding changes to the current decades old laws in order to strengthen forest protection and to increase punishments for forest-clearing, corruption and pollution.

One option being considered is closer coordination between the central government and state administrations. Under Malaysia's constitution, forest management falls mainly under State not Federal control. Many complain that this has led to greater focus on economic interests compared to the environment or indigenous people’s right.


Forest fires in Sarawak

The current dry spell has resulted in several forest fires in Sarawak, especially in the northern Miri area. 

In early August, forest and peat fires were out of control in Kuala Baram and had extended over 600 hectares. Unseasonably strong winds and dry weather contributed to the rapid spread of the fires.

Malaysia will establish a National Action Plan for Open Burning and refine the existing National Haze Action Plan. In early August much of Malaysia was affected by smoke as forest fires continued to rage in Sumatra and Kalimantan.


An opportunity to bring down regional shipping costs

Trading between Brunei, Indonesia, Malaysia and the Philippines will get a boost following the new shipping service launched by Reefer Express Lines.

The launching of the service was initiated by the East ASEAN Growth Area (BIMPT-EAGA) Business Council through a memorandum of understanding aimed at increasing trade volume within the BIMP-EAGA region.

Analysts say the new service could bring down costs and cut shipping times.


ASEAN mutual recognition for timber legality

Delegates from Indonesia, Thailand, Vietnam, Myanmar, Cambodia, Brunei and Malaysia recently met to discuss a regional mechanism for mutual recognition of timber legality definitions.

The objectives of this meeting were:

•to enhance understanding through sharing experiences on developing MRA from other sectors referring to the ASEAN Framework Agreement on Mutual Recognition Arrangements (MRA 1988) and Guidelines on Accreditation and Conformity Assessment;

•to discuss the requirements for MRA development and clearly identify the steps/processes on setting standards and procedures to be followed and how to move the process forward;

•to discuss a stepwise approach and timeline on ASEAN regional mutual recognition arrangement for AMS on timber legality

The meeting agreed on a five-year timeline for implementation.


Furniture exports a major contributor to export earnings

Teresa Kok, Malaysia’s Minister of Primary Industries, has reported that timber exports in the first five months of 2019 rose 2.3% year-on-year.

Malaysia is one of top ten global furniture exporters and in the first five months of 2019, the furniture industry contributed 36 percent to Malaysia’s total timber-related exports, up almost 13 percent year-on-year.

She remarked that Malaysian manufacturers need to be alert as non-wood products are a threat in some of the traditional wood product markets.



Vietnam a major competitor in US furniture market

Indonesian furniture producers are unable to expand market share in the US despite the tariffs on Chinese products.

Based on data from the Indonesian Center for Reform of Economics (CORE) in April 2018, when the US Government began imposing tariffs on Chinese products, the furniture market share of China in the US was 48 percent, while Vietnam’s was 7.4 percent and Indonesia’s 1.63 percent. 

A year later China's market share fell to 46 percent, while Vietnam’s rose to 10.5 percent but Indonesia’s share did not change much, rising to only 1.65 percent.

Mohammad Faisal, Executive Director of CORE Indonesia said that Indonesia has adequate raw materials so it should have taken advantage of the market opportunity in the US. 

However, as he pointed out, there are several reasons why domestic furniture products failed to capture more of the market from China, one of which that Indonesian exporters lack ability to identify market preferences and lack skills to innovate.


Attracting overseas furniture firms to Indonesia

The government has seen an opportunity in the trade conflict between the US and China and is working to attract Chinese furniture manufacturing companies to move operations to Indonesia. 

The Head of the Investment Coordinating Board (BKPM), Thomas Lembong, said Chinese companies in Dongguan have been approached.

In addition to Chinese enterprises, efforts have been made to attract companies in Taiwan.


Community forests to be redefined to boost log availability

The Ministry of Environment and Forestry (KLHK) plans to redefine community plantation forests (HTR) as small-scale industrial forest plantations forest (HTI).

To effect the change, the Minister directed the Director General of Social Forestry and Environmental Partnership (PSKL), Bambang Supriyanto and Acting Director General of Sustainable Production Forest Management (PHPL), Bambang Hendroyono, to review regulations.

This change was decided upon as the HTRs have not delivered the economic benefits expected and have not been registered in the Forest Product Administration Information System (SIPUHH) of the Directorate General of PHPL making it difficult for owners to find buyers for their logs. 

The Minister hopes that with the new regulation, HTR will have the same business function as HTI without a reduction in the social benefits.

The Association of Indonesian Forest Concessionaires (APHI) added its support to the planned change which will encourage community forest plantations to be managed as small-scale industrial plantations. APHI Executive Director, Purwadi Soeprihanto, said this change would benefit plantation owners and has the potential to deliver more raw materials for manufactures.


Permanent moratorium on forest permits

The Indonesian President has signed a Presidential Instruction regarding the moratorium on forest area permits. 

The Minister of Environment and Forestry, Siti Nurbaya, said the moratorium is now permanent for primary and peat forests. 

Previously the moratorium was renewed every two years.


Industry optimistic exports can be boosted

There is growing optimism that the value of wood product exports (excluding pulp and paper) could reach US$3.09 billion by 2025. 

Soewarni, Chairman of the Indonesian Sawmill and Woodworking Association (ISWA), said this would be possible if the supply of logs can be verified legal and if global demand picks up.

Bambang Supijanto, Chairman of the Indonesian Wood Panel Association (Apkindo), projected the value of wood based panel exports in 2025 could be as high as US$2.47 billion from a volume of around 4 million cubic metres.

On the issue of log supply, Secretary General of the Ministry of Environment and Forestry (KLHK), Bambang Hendroyono, believes future log sources will develop as community plantation forests and industrial plantations expand. To encourage this expansion, Bambang said efforts would be made to help community forestry licenses holders build small-scale wood processing facilities as this would encourage further investment in plantations.

In the first six months of 2019, the value of processed wood product exports was US$5.58 billion, down almost six percent year-on-year.

Wooden furniture export were US$695.2 million down slightly year-on-year, panel exports were valued at US$1.05 billion, down a massive 16 percent year-on-year mainly because of weak demand in Japan. 

Paper exports earned US$1.93 down slightly from a year earlier but, in contrast, pulp exports rose around two percent and veneer exports, at US$48.50 million, were down nine percent year-on-year.

In commenting on the export figures, the Chairman of the Association of Indonesian Forest Concessionaires (APHI), Indroyono Soesilo, said that the trade war between China and the US was one of the causes of declining demand for processed wood.

In related news, Purwadi Soeprihanto, Executive Director of the Association of Indonesian Forest Concessionaires (APHI), said the market for mouldings from Indonesia could rise to US$1.17 billion as Indonesia has the potential to produce 1.7 million cubic metres of mouldings, 200,000 cubic metres from natural forests raw material and 1.5 million cubic metres from plantations.


Raw material exports—short term solution to address trade deficit

Indroyono Soesilo, Chairman of APHI, proposed that the short-term solution to lower Indonesia's trade deficit would be to optimise harvesting and trade in natural resources, notably timber raw materials which he said are 100 percent local content and do not require imports of capital goods. 

Plantation owners in Indonesia have long been seeking permission to export plantation logs.

At the same time, Indroyono pointed out that there are opportunities to export wood pellets to Japan and South Korea.

In support of this suggestion, Purwadi Soeprihanto, the APHI Executive Director, said that international demand for wood pellets is huge. In South Korea, the demand for wood pellets is supported by government policies that will provide tax incentives if the industry uses renewable energy from biomass.



MTE facing slow sales of hardwood logs

The Myanmar Timber Enterprise (MTE) has said it is holding as much as 40,000 tonnes of unsold inn-kanyin logs from last years’ harvest. 

Inn-kanyin logs from Myanmar are commonly used for plywood face veneer. The price of first quality of inn-kanyin logs is between US$700-800 ex-site, but at this price plywood manufacturers complain it pushes production costs too high. 

Prices for teak and other hardwood logs have been rising since a decision was made to lower the annual allowable cut.

U Ohn Win, Minister of Natural Resources and Environmental Conservation, has called on MTE to further reduce in harvest levels in 2019/20 saying the harvest should be just sufficient to cover the costs of logging.

The Minister also mentioned an age limit for teak harvests and urged the planting of three seedlings for every tree felled in Mandalay and Sagaing. The Ministry is also planning support for the mahouts and working elephants affected by the reduction in logging.


Union taxation law

The Parliament recently passed the Union Taxation Law which set a tax of 10 percent on logs and sawnwood for export and five percent for import ( export of logs from the natural forest is banned). 

Manufacturers have urged the government to reduce the tax on imports.

While it is understood the Ministry of Natural Resources and Environmental Conservation is in favour of reducing tariffs on the importing wood as manufacturers have a hard time competing with products from neighbouring countries.


Exports face uncertain future in EU market

According to the Ministry of Trade, exports of wood products declined around 13 percent between October to June of 2018-19. 

From October 2017 to June 2018, export earnings totalled US$147.456 million, while they were US$128.637 million between October 2018 and June 2019. 

According to analysts, exporters are facing growing uncertainty, especially with respect to exports to the EU.

According to a report by the Extractive Industries Transparency Initiative (EITI) Myanmar report the Sagaing Region was the top teak producer in the two years of 2014-15 and 2015-16 accounting for 46 percent of national teak production. In second place was Shan State which contributed a further 27 percent.



A first for India—a shipment of pine logs arrives from Uruguay

For the first time a shipment of pine logs from a country other than New Zealand has been unloaded in Kandla Port.

Members of the Kandla Timber Association (KTA) were on hand to view the shipment which it is hoped would result in more competition in the pine log market.

Navneet Gajjar, president of KTA, said this first shipment was of 35,000 cubic metres at a price of around US$145 per cubic metre, some US$20 per cubic metre lower than pine from other sources. 

Officials from the Plant Quarantine Station at Kandla said the Uruguayan logs met Indian phytosanitary standards.



Rubberwood—a major raw material in Vietnam

Rubberwood has become an important raw material for Vietnamese wood product exporters. Over the past few years clearing of rubberwood for replanting has yielded a volume of between 4.5 and 5 million cubic metres of roundwood and some 70 percent of this is utilised by manufacturers.

In 2017, exports of rubberwood products were worth around US$1.7 billion accounting for almost 25 percent of Vietnam’s wood products exports.

In the future, this source of raw material will have sustainable forest management certificates and CoC documents to satisfy demands for legality verification.

The greater use of rubberwood will sharply improve the supply of raw material for Vietnamese manufacturers.


Piloting Vietnam’s Forest Certificate System

In order to certify 20,000 hectares of plantation forests in accordance with the Vietnam Forest Certification System (VFCS), the Vietnam Administration of Forest and Vietnam Rubber Group (VRG) plans to coordinate with sector stakeholders to ensure Vietnamese wood product manufacturers meet the standards set in the VFSC for sustainable management and for CoC.

The Vietnam Rubber Group has already signed an agreement under which about 12.000 ha of rubberwood will be certified.

To build upon this effort the VRG and its members organised training activities for stakeholders on (i) building capacity to understand and implement CoC and certify SFM (ii) Planning the roadmap to achieve CoC (iii) summiting documents to verify SFM and CoC.


Calls for long-term plantation plan

Forest plantations play a vital role in the national wood processing industry and Nyssaceae (dogwood) is utilised commercially. Due to intense pressure on manufacturers to secure raw materials Nyssaceae trees are being harvested after just 5-7 years and this has raised concerns as felling at such an early stage diminishes the economic potential of the plantations.

To address the issue of Nyssaceae harvesting, Ha Cong Tuan, Deputy Minister in the Ministry of Agriculture and Rural Dvelopment (MARD), signed a Decision (No. 2962) providing regulations for Nyssaceae harvests.

The new regulations are seen as demonstrating the determination of government to improve the current obstacles in the national wood processing industry and to promote sustainable harvesting and export of certified wood products.

According to the Forestry Administration worth wood product exports were almost US$7 billion in the first six months of 2019.

The General Statistics Office (GSO) has reported that in the second quarter of 2019 the central plantation forest area was estimated at 78,000 ha a decline of around five percent compared to the same period of 2018. 

These plantations produced around seven million cubic metres.


Anti-dumping investigation on imported MDF

According to the Trade Remedies Authority in the Ministry of Industry and Trade (MoIT) an anti-dumping investigation on MDF imported from Thailand and Malaysia was initiated in October last year.

This investigation was the result of complaints from four Vietnamese MDF manufacturers on behalf of the domestic industry. The technical dossier claimed dumping and damage to local companies.

The Vietnamese firms claimed that the price of imported MDF from Thailand and Malaysia was below production cost by between 18-50 percent which was damaging the domestic MDF industry.

The Trade Remedies Authority sent questionnaires to local companies and required a reply by mid-July, 2019 and an assessment from the Ministry is awaited. This is the first time Vietnam’s timber industry has raised a trade conflict to protect the local industry.


First half 2019 trade

The Department of Customs has reported Vietnam’s exports of wood products in the first six months of 2019 were worth US$4.82 billion, up 16.6 percent over the same period last year.

Among the top five export markets were the US, Japan, China, South Korea and the EU. Exports to China and South Korea declined by 30 percent and 13 percent respectively.

For the first six months of 2019, wood product imports were valued at US$1.233 billion, up 15 percent in comparison to the same period of 2018. Vietnam had a trade value surplus of US$3.586 billion in wood products in the first 6 months of 2019.


Opportunities and challenges in the US market

In the first six months of 2019, the US continued as Vietnam’s top export market for wood products with exports totalling nearly US$2.25 billion, accounting for 47 percent of total wood product exports.

Analysts in Vietnam’s Ministry of Industry and Trade anticipate total 2019 wood product exports of US$4 billion to the US. Furthermore, the US is the biggest suppliers of timber raw material utilised by Vietnamese manufacturers.

In the first 6 months of 2019, imports of wood products from the US were worth over US$160 million, a rise of almost 25 percent year-on-year.

It is forecast that the US will become the major supplier of timber raw material for industries in Vietnam because large volumes are available the quality is good and the origin is traceable.

On the downside, there are growing concerns on the risk of US anti-dumping investigations of Vietnamese exports and also the risk that not all timber raw material entering the export supply chain can be verified legal especially from wood processing industries that have recently relocated to Vietnam.


Vietnam in action to implement the VPA/FLEGT

The Vietnam-EU VPA/FLEGT came into force 1 June 2019. According to the Vietnam Administration of Forestry, the VPA will lead to greater potential for wood products exports from Vietnam to the EU market. 

The adoption of the VPA is also expected to contribute to the sustainable development of Vietnam’s forests and a strong commitment to eliminate illegal timber from the supply chain.

Vietnam will launch its domestic timber legality assessment system and plans to issue the first FLEGT license in June 2020. 

License legislation for the VPA is the next step and it is planned to expand this legal require to all markets in the future.



July marked first month-on-month improvement in PMI growth in four months

Chinese manufacturing activity remains depressed due to the combination of the ongoing US-China trade conflict as well as slowing domestic demand. 

The National Bureau of Statistics has reported that in July the manufacturing purchasing managers index (PMI) was 49.7, slightly up on June marking the first month-on-month PMI growth in four months. 

A reading above 50 indicates expansion, while a reading below reflects contraction.

Among the five sub-indices comprising the PMI, the production index and supplier distribution time index were higher than the threshold, while the new orders index, main raw materials inventory index and employment index were lower than the threshold.


Surge in wood furniture export through Huizhou city

According to Huizhou Customs the value of wooden furniture exports from Huizhou City surged nearly 200 percent to US$887 million in the first half of 2019 setting a new record high. 

Wooden furniture exported from Huizhou City is mainly tables and chairs, cabinets, sofas and panel furniture and is exported to 156 countries with Japan, South Korea and Australia the main markets.

In the first half of 2019, furniture from Huizhou City was exported to Brunei, Iraq and other countries along the ‘Belt and Road Initiative’ route. New markets were found in Liberia, Lesotho and other African countries.

According to Huizhou Customs, thanks to the construction of Guangdong-Hong Kong-Macau Greater Bay Area, Huizhou City has become a top choice for the manufacture of furniture attracting enterprises from Shenzhen and Dongguan.

In the first half of 2019, there were 84 newly registered wooden furniture enterprises in the Huizhou area of which about 40 percent were relocated from Shenzhen and Dongguan.

In order to ensure the smooth production and export of wooden furniture and promote international trade, Huizhou Customs set up a special group for enterprise registration and assessment because of the high demand for enterprise registration.

Huizhou Customs actively assists enterprises in improving quality management systems, formulating self-inspection and self-control plans, strengthening the whole production management and environmental controls.


First home designed fully automated mill for China

The first fully automated sawmill has been commissioned in Lanzhou the capital of China’s northwest Gansu Province.

The mill has automatic feeding and optimal cutting capacity with virtually no manual input. The mill was operational in April 2019 and is the first ‘intelligent’ automated production line in China. 

With the exception of some machines imported from Germany, the other machines in the mill were all designed and manufactured by the company.


Wood chips sales expanding 10% annually

Over the past few years, the wood chip processing market in China has expanded by about 10 percent annually. 

The number of enterprises in the wood chip processing sector is larger and there are more than a thousand production enterprises in the country but the number of enterprises with a turnover of more than RMB20 million is small.

Domestic raw material for wood chip production is insufficient such that mills are highly dependent on the imports.


Factors affecting China’s Wood Market

China’s economic downturn is impacting sales of wood products and under present market conditions there is growing over-capacity in the sector. Consumption of wood products has declined and supply exceeds demand.

Analysts suggest that mill capacity utilisation has fallen to only 50 percent in many plants.

Much of the weakened demand is the result of lower housing starts brought on by tighter credit conditions. This is especially noticeable in the economically developed coastal areas such as Shandong, Jiangsu and Guangdong Provinces where house prices have fallen. 

Timber consumption has also been impacted by lower investment rural housing as many low cost housing projects have suffered budget cuts.


Trade with ‘Belt and Road’ countries outpaces others

The growth in China's foreign trade remained stable in the first half of 2019 and the total foreign trade value reached RMB14.67 trillion, up 3.9 percent year-on-year.

Customs data showed that exports expanded 6.1 percent while import rose 1.4 percent. China saw its trade surplus widen by 41.6 percent year-on-year to RMB1.23 trillion during the first half of 2019.

The value of trade between China and the EU, ASEAN and Japan rose in the first half to RMB2.3 trillion, however, the value of trade between China and the US fell nine percent to RMB1.75 trillion year-on-year. 

China's trade with countries participating in the ‘Belt and Road Initiative’ outpaced of expansion in other areas rising 9.7 percent year-on-year.

It has been reported that China intends to further lower overall import tariff levels, refine export tax rebate policies and speed up the tax rebate process.

For its part, China Customs plans steps to further simplify customs clearance procedures, support cross-border ecommerce, share effective reform practices in free trade zones and promote diversification of export markets.


Revised standard for laminated floors

The standard for laminated floors has recently been revised by the Wood Industry Research Institute in the Chinese Academy of Forestry and will be implemented as soon as possible.

The revisions mainly deal with the terms and definitions, classification, requirements, inspection methods and inspection rules. Quality requirements for the non-flat impregnated paper laminated wood flooring have been added and the quality requirements for flat impregnated paper laminated wood floor have been modified.

The performance indices such as the expansion rate of water-absorption, locking strength and formaldehyde emission, have been upgraded.

The implementation of the new standard for laminated floors is intended to promote safe, exquisite and durable impregnated paper laminated wooden floor in China domestic market and improve the image and reputation of the products in international markets.


Reduced panel production causes prices to rise

In order to improve air quality and the environment producers of wood-based panels in many cities in Shandong province will be closed or required to undertake refurbished to new environmental standards.

The number of enterprises stopping production is rising mainly because production costs have risen because the government has strengthened environmental standards and is applying these vigorously.

The impact on production costs of rising raw material costs is also a factor.

As mills close analysts write that it is expected that prices for panels will rise and some shortages are likely in the short-term.



Wooden door imports

The value of Japan’s first half 2019 imports of wooden doors (HS441820) were up around five percent on the same period in 2018.

The value of Japan’s June imports of wooden doors (HS441820) rose around three percent from May, the third consecutive monthly increase.

As in previous months, the top four shippers accounted for over 80 percent of June imports with manufacturers in China accounting for 67 percent of June imports followed by the Philippines (19%). 

A further 3-4 percent was shipped from both Indonesia and Malaysia.


Wooden window imports

The value of Japan’s first half 2019 imports of wooden windows (HS441810) were up around three percent on the same period in 2018.

Since February this year, there has been a steady rise in Japan’s imports of wooden windows (HS441810).

The value of June imports were up almost six percent year-on-year and month on month June imports rose around four percent.

The top three in June were China (36% of imports) the US (28%) and there was a sharp rise in imports of wooden windows from the Philippines which contributed over 20 percent to total window imports.


Assembled wooden flooring imports

The value of Japan’s first half 2019 imports of assembled wooden flooring (HS441871-79) dropped six percent from the same period in 2018.

Of the range of categories of assembled wooden flooring imported into Japan, HS441875 accounts for the largest proportion with China, Indonesia, Malaysia and Thailand being the top shippers in order of magnitude. 

June 2019 imports of assembled wooden flooring were down eight percent year-on-year and down a massive 25 percent compared to the value of May imports.


Plywood imports

The volume of Japan’s first half 2019 imports of plywood (HS441210-39) dropped 15 percent compared to the same period in 2018. 

There has been a downward trend in the volume of imports since November 2018. The volume of imports from the main suppliers Malaysia, Indonesia and China have fallen with Malaysia and Indonesia posting the largest declines.

One category of plywood, HS441875, dominates Japan’s plywood imports and in June, as in the previous months, accounted for well over 60 percent of all plywood imports. 

The changes reported in Japan’s plywood importing sector continue to emerge.

Year-on-year the volume of June imports of plywood were down a massive 23 percent. Year-on-year shipments from Malaysia were down 23 percent in June, shipments from Indonesia dropped 21 percent in June and there was a 25 percent drop in June shipments from China.

As in previous months plywood imports were dominated by HS 441231, accounting for 88 percent of all June imports.

HS441233 and HS441234 contributed five percent each with another two percent being HS441239.



EU wood manufacturing struggles with slow growth and substitutes

The EU wood joinery sector continued to grow only very slowly in 2018, well below the pace of increase in the wider construction sector. 

While joinery production and consumption gained momentum in Germany, Austria, Spain, the Netherlands and Belgium last year, it remained subdued in Italy, the UK, France and Scandinavia.

Growth in the EU wood door sector slowed in 2018, while the wood window sector was close to a new record low.

There was some evidence of wood making up some lost ground against plastics in these sectors, but wood continues to face stiff opposition from other materials.

Where wood is being used, it is increasingly combined with metals, or used in engineered form, to ensure greater strength and durability.

These are the main conclusions to be drawn from analysis of newly released Eurostat PRODCOM data which provides a snapshot of the production and consumption value of wood joinery products in the EU in 2018.


Brexit bites, but EU hardwood buoyed by new marketing moves

While uncertainty surrounding Brexit may be casting a shadow over the UK market the wider EU hardwood sector reports generally steady, in some cases strong, trading in to date including in tropical timber. 

This is despite some slowdown in economic activity and increased downside concerns about the medium-term outlook.

Businesses report some issues with supply, but overall consumption is said to be holding up, while hardwood prices are steady to firm.

There have been interesting developments in hardwood promotion. New moves in marketing and communication have come from the Sustainable Tropical Timber Coalition (STTC), the International Tropical Timber Technical Association (ATIBT), the American Hardwood Export Council (AHEC), FSC and the UK Timber Trade Federation (TTF).

The EU FLEGT Independent Market Monitor (IMM) has also continued its series of EU trade consultations on FLEGT, with the latest taking place in Antwerp and the next scheduled for Barcelona.

According to the summer 2019 economic overview from the European Directorate General for Economic and Financial Affairs (ECFin), growth in the euro area in first four months exceeded expectations. 

This was attributed to resilience in domestic demand, UK stockpiling ahead of the originally anticipated Brexit date at the end of March, a mild winter underpinning consumption and recovery in automotive sales.

At the same time, ECFin identified some negative market factors. EU export activity remained subdued, which it attributed to international trade tensions, notably between the US and China, undermining confidence in an already weakening global economy.

Prospects for the rest of the year, it said, depended on the resilience of the service sector, given that manufacturing has entered a ‘soft patch’, continued growth in central and eastern Europe and the extent this can offset industrial slowdown in Germany and Italy, and the impact of still rising wages on inflation.

The labour market remains a ‘bright spot’ but, said ECFin, it was threatened by the protracted weakness in manufacturing and external demand.

In the second quarter, it predicted the ‘positive’ impulse experienced in the first would unwind as the ‘global manufacturing cycle has yet to bottom out’, while the outlook for trade and investment continued to be ‘clouded by protectionism and uncertainty’.

Weakness in manufacturing and external demand could also dampen jobs growth. Overall, ECFin forecast EU economic growth for 2019 at 1.4 percent, against 1.9 percent in 2018, with the predicted rebound later in the year now likely to be weaker.

Continued slowdown in the Chinese economy remained a downside concern, and the prospect of a ‘no-deal’ Brexit was described as a ‘major source of risk’. That said, however underpinned by some strong fundamentals, such as low interest rates, low unemployment and inflation forecasts revised down to 1.3 percent for each of the next two years, EU growth is predicted to firm once more in 2020 to 1.6 percent.

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