The Irish timber industry is preparing for a relatively quiet period as Christmas approaches. But in addition to the seasonal down-turn, other market factors are leading some to think that Ireland’s unbroken run of record prosperity over recent years may be coming to an end.
Government efforts to cool the over-heating housing market have quickly brought about a slowdown in the sector, which is causing concern and uncertainty over next year’s timber purchases among suppliers to the construction industry. Also, a huge amount of additional timber capacity is expected to come on stream in 2001, threatening to increase the pressure on agents and importers.
A spokesperson for the Irish Timber Trade Association reports that things in general in the industry are ‘much the same’ as at the time of the last report. A timber merchant, meanwhile, complains that business has been adversely affected by ‘appalling’ weather conditions, identical to those in the UK, which continue to hinder construction activity (‘and affect my golf’). However, he believes that the timber sector remains fundamentally healthy.
‘January and February are traditionally wet months in this country,’ he said. ‘But I’ve never seen anything like this so early. It’s not cars anymore, it’s canoes.’
The Irish government delivered its Budget at the beginning of December and came under immediate attack from officials in Europe and at the Organisation for Economic Co-operation and Development (OECD). The Budget, containing cuts in VAT and record spending increases, was thought by many to be the wrong formula for what is still Europe’s fastest-growing economy, possibly risking the achievements of the past decade. Fuel duties were also cut, drawing fierce criticism from green groups which say the country is already failing to hit existing emissions targets.
Big give-away
‘This is probably the biggest give-away budget in Irish his-tory,’ said one sawmiller, who nevertheless believes that the government is doing the right thing. ‘Some economists have said that giving away taxes in the Budget is inflationary but it depends on how it is done. It is a very, very fine line,’ he said.
European complaints centred on the fact that Ireland’s continued prosperity is widely regarded as a key indicator of the health of the whole euro currency experiment. Successive falls in the ailing currency have served only to attract speculators to Ireland and suck in yet more investment.
Ireland’s gross national
product is expected to rise by over 8.5% this year and unemployment is just over 3%, having fallen from 11% in 1996. However, inflation, which rose to 6.8% in October, now stands at almost three times the European average.
Ironically, one of the biggest problems facing Irish policy makers is a direct result of the country’s extraordinary success. The Budget surplus is set to rise from I£5.5bn to more than I£6bn next year – an embarrassingly large sum of money, which the government is obliged to inject back into the system at some point. Some say that it had no choice but to be ‘expansionist’, considering all the circumstances.
One contact suggested that the Irish government is particularly keen to ‘pull back’ the inflation level next year as a pre-emptive strike against excessive wage demands, which are themselves regarded as inflationary. ‘Already this year we’ve had strikes in different sectors over pay,’ said the contact. ‘The Budget’s impact will be to take away expectations of big wage increases.’
Bursting bubble
There was very little in the Budget for the construction industry. The sector has gone from strength to strength over the past few years on the back of national prosperity and phenomenal housing demand, but it seems the bubble may have burst, with reports of at least one builder going out of business.
One timber stockist and builders merchant said: ‘It had been booming up until the end of September but since then there seems to have been a slight slowdown in the market.’
Another contact said: ‘Dublin is still very buoyant but the country as a whole is beginning to suffer and I expect house prices to fall back a bit more.’
Stamp duty
The frantic activity of property speculators in Ireland has been severely curtailed after the implementation earlier this year of a recommendation in the Bacon Report, increasing stamp duty to 9% of the purchase price. The government-commissioned report was designed to take speculators out of the market, enabling first-time buyers to get their hands on houses.
‘Before, if you were a private investor and you bought a second house, you were able to write off the mortgage interest on the house against the rental income,’ explained a contact. ‘You can no longer do that and, because of the new penalties, property investors are looking elsewhere in the UK or Spain.’
The government has also put a lot of money into local housing corporation and council schemes to help develop cheaper housing. This has left more property on the market and brought about the desired reduction in house prices, but the contact is concerned that such measures may cause the balance to swing too far the other way. ‘In the Budget there was no reference to tax relief on interest on a second house, or rental income, or retraction of any of earlier measures,’ he said. ‘The housing market has slowed down dramatically from its high level and I think the government is quite happy to see that happen. We are wondering what impact this will all have on our timber purchases next year.’
Irish timber importers are expected to face increasingly difficult market conditions over the next few months, as output from domestic mills grows. At least 70,000m³ of ‘extra’ timber will come on stream in 2001. ‘That much more wood in one year will have a very serious impact on the market,’ said an importer. ‘I think imports will reduce on the back of the overcapacity.’ Exporters from Sweden and Finland are ‘going to feel the pinch’, he added.
Scandinavian timber has become ‘very plentiful’ in Ireland, though one contact suggested this situation may change if emerging reports of log shortages in the region turn out to be true. ‘When the freeze comes and the Swedes do get into the forests, I have no doubt that they will start to produce more than the market can take, as they usually do,’ remarked one cynical timber merchant. For this, and other reasons, timber prices are expected to remain fairly static in the short to medium term.
Despite impending difficulties, most contacts remain positive and importers, in particular, are bullish. ‘I think things are actually improving,’ said a spokesperson in one importer’s sales office. ‘From a sales point of view we have been very busy over the last month, both in Ireland and the UK, which is good for this time of year. Everybody seems to be doing up their houses for Christmas.’