SCENARIOS AND FORECASTS FOR THE FURNITURE SECTOR 2020-2022

CSIL has just published two forecast and scenario reports: the Forecast Report on the Furniture Sector in Italy, 2020-2022 and World Furniture Outlook 2020

The furniture sector in Italy

The sales of the Italian furniture sector were stable on both the domestic and export markets in 2019, resulting in zero growth in total turnover at constant prices. The overall macroeconomic situation in Italy did not help sector firms: the Gross Domestic Product is
expected to increase by just 0.2% in 2019 in real terms, a slowdown in growth compared to 2018 (+0.8%). The climate of confidence among manufacturing companies has continually worsened and this has had repercussions on investments: for firms in the furniture sector investments in woodworking machinery marked time, as can be seen from the ACIMALL data for the first semester 2019 that show a drop of -25% in orders from the Italian market. Also affecting this performance, in addition to the weakness of the market, was the end of the leverage effect of tax incentives.

The Italian market is holding up

On the domestic market the major demand determinants are following a positive, although clearly decelerating, trend and together with the existence of the furniture bonus they help to bolster domestic consumption; but, on the other hand, the uncertainty linked to future prospects continues to limit effective spending on furniture and also future purchasing intentions. In 2019 family spending declined, but was still positive (+0.6% in real terms). However, at the same time an increased propensity for saving was recorded. In 2020 household consumption is expected to record further growth of +0.6%, sustained by improvements in the labour market. Investments will remain positive, but will slow down: in 2019 growth is settling at about 2.2% and in 2020 it won’t be more than 1.7%. The deceleration in investments is mainly driven by the limited growth of the machinery component.

For the furniture sector this scenario will lead to a further weakening of the domestic market, which will show growth in the region of 1% only as of 2021. Domestic consumption will continue to benefit from the positive input of investments in residential construction, but the slowdown in the growth of disposable income and total employment towards the end of the forecast period will curb spending.
The Law of Stability for 2020 confirmed the furniture bonus at the same conditions and a positive impetus will come from the construction of new homes, but at present one can presume that the expansive measures of the manoeuvre will not be sufficient to provide any momentum to the market. In view of the developments in demand determinants, we can say that in 2020 the domestic market will be basically stable and that the growth in imports will not be significant enough to cause anything but a marginal increase in their level of penetration of the Italian market.

The slowdown in world demand affects Italian exports

Looking at the foreign sales of Italian sector firms, 2019 recorded a slowdown in growth. More specifically, sales on the European Union markets developed at a slightly faster rate than those on Extra-EU markets, thanks especially to the good performances on the French and Swiss markets. In 2020, on the other hand, exports will benefit from a livelier potential foreign demand, which will allow for an increase in sales abroad, albeit very moderate. On foreign markets the anticipated appreciation of the euro against the US dollar will not foster demand from countries outside of the European Union, which will be more dynamic, and the demand from countries within the European market will remain positive, but still moderate. Overall, foreign demand from extra-European countries is expected to increase by over 2% in 2020, thanks to the performances of the North American and Asian markets and a probable recovery, with notable fluctuations, in the Middle East. We expect that Italian sector firms will be able to harness a good deal of this demand thanks to the maintenance of price
competitiveness. In summary, in 2020 an increase in exports of 1% at constant prices is forecasted.

A scenario of continuing uncertainty

The current forecast scenario for world and Italian growth is marked by some downside risks due to the possible negative developments of tariff wars and geopolitical turbulence, which have a negative effect on international trade and increase the level of uncertainty among operators. Global growth in 2019 (3%) was the slowest since 2009 and it should increase moderately by 3.4% in 2020 and by 3.6% in 2021. There are substantial downside risks, mainly because of:

• Weak confidence on the part of firms due to the tension between the USA and China over trade
• Volatility of the climate of confidence of consumers in the more advanced economies
• Continuous structural slowdown in growth in China
• Uncertainty over Brexit

The downside risks for the global economy have a strong impact on the furnishings sector, especially because furniture is widely traded at an international level (imports claim 32% in value of world furniture consumption). The trade tariffs imposed by the United States and the retaliatory measures taken by their trading partners continue to substantially change the scenario. Furthermore, the escalation of trade tension kindles greater political uncertainty with negative effects on the general economic climate.