Europe felt the sharp impact of recession during 2001, and uncertainty over the length and intensity of the slowdown is clouding regional forecasting for the coming year.
While European plastics processing saw a marked production decline in 2001, converters are optimistic 2002 will bring a gradual, if initially weak, recovery.
In the past year, Western Europe's processing sector experienced a ``significant slowdown'' with a fall in output of 0.4 percent against a near record rise in 2000 of around 5 percent, according to a new report by the regional processors' organization, the European Plastics Converters (EuPC).
The sector was held back by the construction market, where output plunged 4.2 percent, and in the semifinished product market, output was down 0.8 percent. Packaging remained buoyant, although well below the year before, managing growth of 2.4 percent.
European plastics processing will see renewed, if slight growth during this year with an annual rate of just 1.7 percent overall. That will be led by a strong recovery of 4.8 percent growth forecast for industrial and consumer products, including automotive, electronics and home appliance parts, as well as consumer goods like housewares, according to ``Economic Report 2001.''
The report predicts an annual real growth rate for the years 2001-03 of about 2.1 percent for the processing industry in the European Union, about half that of the three previous years. By 2003, all markets should be expanding strongly, and construction should achieve a remarkable turnaround with growth that year of 5.1 percent.
Reacting to the deepening U.S. recession, the 12 nations of Western Europe's euro zone continued to revise downward their economic growth forecasts.
Germany, normally the powerhouse economy of Europe, saw its fortunes plunge rapidly. Against the bullish forecast of more than 3 percent growth, the country has achieved a paltry 0.75 percent rise, below the zone's overall growth of just 1.5 percent. The government's rather rosy prediction for 2002 sees expansion of 1.25 percent, although the EU suggests Germany will barely reach 0.7 percent growth.
Elsewhere, other zone members have fallen well short of their gross domestic product targets for 2001. Spain, in recent years showing strong growth, has achieved an estimated 3 percent rise, below its 4 percent target, while Italy's economy grew barely 2 percent against an expected 3 percent.
Outside the euro zone, Sweden grew 1.4 percent against a forecast of 3.9 percent, but the United Kingdom has come close to its growth target of 2.8 percent with an expected GDP rise of 2.3 percent in 2001.
Forecasting national 2002 performances has been difficult as the dust settles on the U.S. recession and the Afghan war aftermath. But the Spanish economy is expected to grow by perhaps 1.7 percent, Sweden by about 1.6 percent and the British economy is set to manage around 2 percent growth.
While economic expectations for 2002 remain largely gloomy, Western governments' implementation of strong monetary and other policies may stimulate growth.
Resin prices in Europe fell steadily in 2001, a trend that may continue this year.
``Polymer prices are more stable now. They will remain [lower] for several months more, possibly for as long as a year,'' suggested a decidedly optimistic Victor Dierinckx, president of the Brussels, Belgium-based EuPC.
Resin suppliers in Europe saw their sales volumes rise by about 2.3 percent - a percentage point lower than 2000 - but prices remained weak, leaving suppliers nervous about low margins, according to consulting firm Applied Market Information Ltd. of Bristol, England.
AMI predicts modest 2 percent growth through 2002, with demand picking up in the second quarter.
Commodity polymers, associated with resilient food packaging and other packaging applications, are expected to hold up better than engineering resins used in the more sensitive electrical appliances, auto components and mobile communications products, said AMI.
True to form as European plastics processing's most resilient market, packaging has weathered the economic and terrorist storms of 2001 better than other applications. But its edge will be blunted through this year by a combination of pressure on volumes from packaging regulation and import competition in the film and bags segment, according to EuPC.
``Even after Sept. 11, plastics packaging, rigid and flexibles, is still growing. It is very dynamic,'' said Marcel de Botton, EuPC honorary president and president of Logoplaste Consultores Tecnicos SA. The company in Cascais, Portugal, creates ``hole in the wall'' molding plants for multinational food and drink companies.
EuPC predicts packaging will grow almost 3 percent this year and 4.7 percent in 2003. Packaging applications represent about 31 percent of plastics consumption in Europe.
This year, packaging converters face a new challenge in the EU's amended Packaging and Packaging Waste directive, which would lay down stiffer waste recycling targets. The proposal would raise the target in plastics packaging to 20 percent by 2006, from 15 percent now, in most EU member states.
The proposal is under discussion, but should be on the fast track by the spring, according to EuPC members, who accept the rise as reasonable.
European film and bag converters continue to face fierce international competition. Between 1991 and 1998, plastic retail bag imports from Asia grew more than 190 percent, to 597.4 million pounds, said Frank Wittendal, the EuPC adviser who compiled the economic report. The consensus is that mergers and buyouts are set to continue in the sector.
``Smaller processors have more difficulties with the competition, except if they are in niche markets such as cosmetics. Large customers who previously wanted, say, two main suppliers, now want just one with regional plants to serve different operations,'' said de Botton.
The construction market was hurt by a major slowdown in private-sector home building in Germany, where government tax incentives and subsidies have been reduced - making the business less attractive, said Joachim Eckstein, former chairman of EuPC's building and construction committee.
There is little prospect for improvement before September, when the German election could remove the Green Party from power and lead to more building-friendly policies, Eckstein said.
Germany's window profile makers reported a 12-15 percent drop in volume last year, said Hubert Hecker, chairman of PVC profile maker Veka AG of Sendenhorst, Germany. In spite of the downturn, Veka maintained volume growth by capturing export business.