Exports of Malaysian furniture rose to 1.91 billion ringgit in the first quarter of 2006, up 8% from 1.77 billion ringgit in the same period in 2005, according to the Malaysian Timber Industry Board (MTIB). Despite the encouraging results and improved demand from Europe, the Malaysian Furniture Entrepreneur Association (MFEA) is more cautious. MFEA president Cha Hoo Peng warned that rising raw material and financial costs and the negative impact of the strong ringgit could hit furniture exports hard in the second half of the year.

He said that after the 12% average increase in electricity costs, factories could not just switch all manufacturing activities to night shifts to take advantage of cheaper rates. The Malaysian labour laws had constraints and overtime claims would be too costly. Mr. Cha said that since the Malaysian furniture industry was export-oriented, it was vulnerable to external factors such as the strengthening of the ringgit (up 5% this year against the US dollar) and high crude oil prices, which make plastic and glue more expensive. With high oil prices, petroleum derivatives like upholstery stuffings, plastic, glue and diesel have become more expensive.

MFEA has urged a ban on the export of sawn rubberwood as the inability to secure adequate rubberwood had forced many financially-weak furniture manufacturers to turn away orders from buyers in the USA and UK. However, sofa-makers were somewhat cushioned against the strong ringgit as leather imports made up half of their total raw material costs. Overall, the growth of Malaysian furniture exports have slowed down since world oil prices started to rise in mid-2004. The growth of furniture exports in 2004 through 2005 was significantly lower in comparison with other manufactured goods.

Meanwhile, MFEA has advised members to be more productive in their operations and streamline costs. Some of the bigger members would outsource more in Vietnam and China. MFEA expects MTIB to expedite the planting of more rubber trees. For long-term survival, some of MFEA members are investing upstream to plant rubber trees.

Building sector on track for a good year

There are increasing signs that the economic situation in the Netherlands is improving: unemployment is falling and readiness to invest is growing. After 6 difficult years, the Finance Minister reported a budgetary surplus of at least €2 billion in April and expectations of a surplus for the whole year. This is in contrast to last year forecast of a 1% deficit.

With improved consumer trust, the building sector is doing quite well. The revival is evident according to analysts and will not be short-lived. In the first quarter of 2006, 12,500 new houses were completed, up 31% from 2005. The Central Planning Bureau (CPB) forecasts that the building sector is on track of having a good year. Permissions for housing starts rose 38% compared with January-March 2005. However, the revival is more concentrated on the central and western part of the country. The Minister of Housing, Mrs. Sybille Dekker, is devoting efforts to bring down the shortage in the housing sector from the current 2.5% to 1.5% by 2010, hence a lot of new housing units will need to be built.

After their fourth consecutive monthly decline (see TTM 11:10), exports of Brazilian furniture fell to $284.3 million in January to April 2006, down 11% from last year according to the Furniture Industries Association of Rio Grande do Sul (MOVERGS). Thus, the possibility of achieving again the $1 billion export level of 2005 is dimming. Export to the USA, the largest market, fell once again to $98.2 million in the period, down 21.5% from 2005. Exports to France also fell to $24.4 million, down 23%. In contrast, Argentina, Spain and Chile increased the purchase of wood furniture from Brazil. According to MOVERGS, the furniture sector has reached its limit to operate favourably, considering that the US dollar has been depreciating since last year. Companies have been absorbing the increasing production costs to maintain the contracts with their clients.

The impact of the depreciation of the US dollar against the reais on the lumber and furniture sectors in Santa Catarina resulted in the loss of nearly 6,000 jobs over the past year. More than a third of these jobs were lost in Sao Bento do Sul and Rio Negrinho, two major furniture clusters. These clusters exported 79% of their production and accounted for half of the Brazilian furniture exports. Local firms had recently presented to the Treasury Minister the situation that affected the whole economy of the clusters' municipalities, which depended 50% from the furniture and solid-wood activity. Retail sales had declined 37% while tax revenues had fallen 15% this year, according to the Trade and Industrial Association of Sao Bento do Sul (ACISBS).

House price growth was slow in May for the second consecutive month, according to the Nationwide Building Society. Prices rose just 0.2% and annual house price inflation fell to 4.7%. The price of a typical house in the UK is now £164,632, almost £7,500 more than May last year. This is equivalent to a price increase of just over £20 per day over the last twelve months. The market demand will depend on interest rates. Looking further ahead, Experian Business Strategies, a consultant, expects total construction output in the UK to expand by 13% to 2008.