International Coatings Scene

EUROPE

BY SEAN MILMO

EUROPEAN CORRESPONDENT

MILMOCW@RODPUB.COM

Looking beyond the recession

Anticipating economic recovery, Western coatings companies continue to invest in growth markets like Russia.

The economies of many countries in Eastern Europe, including Russia and its neighbors, have dragged down into the recession after several years of strong growth in their gross domestic product (GDP).

In February the region was on the edge of a full-blown economic crisis as investors pulled out of the area, sending local currencies into a sharp decline, which prompted calls for a rescue package provided by the International Monetary Fund (IMF).

However, Western and domestic coatings companies are already planning for the economic recovery in the region because its battered economies are expected to be among the first in Europe to come out of the downturn. Coatings will be one of the first sectors to benefit from this revival.

A quick recuperation is predicted to take place in the ten Eastern European (EU 10) states, which in recent years have joined the European Union (EU).

The London-based European Bank for Reconstruction and Development (EBRD), a public-sector body that invests funds into companies and development projects in Eastern Europe, expects that growth in its 30 countries will be static this year against a 4.8% increase in GDP in 2008.

The World Bank has predicted that the economies of six of the EU 10 countries—the Czech Republic, Poland, Bulgaria, Romania, Slovakia and Slovenia—will grow by between zero and two percent this year.

It is also forecasting that although output in the whole of the Eastern European region may suffer a small decline this year it will return to growth in 2010. Overall the area’s economic performance will be better than that of Western Europe’s.

Outside of the EU Russia’s government is conceding that its GDP will fall by more than

two percent this year while some analysts expect that that of neighboring Ukraine could decline by more than five percent.

But during the downturn across Eastern Europe some coatings segments, particularly for decorative paints, which comprise a major proportion of the total market, are proving to be surprisingly resilient.

Kingfisher plc, a UK-based retail company with a chain of DIY stores in Eastern Europe, reported strong sales growth in the region in the fourth quarter of its fiscal year ending January 31, 2009. In the full year like-for-like sales, after excluding factors like new stores and currency fluctuations, went up by 5.5% in Poland and 17% in Russia, where the company now has seven large stores.

“Both the Russian and Polish DIY markets are very fragmented and relatively new,” said a Kingfisher official. “People in both countries have a strong interest in improving their homes after years of neglect. In Russia the government has handed over large numbers of state-owned homes to their occupiers who are now trying to catch up with their improvement after many years of underinvestment. Levels of personal debt are comparatively low so there is more disposable income to be spent on homes.”

Even in Eastern European countries with static or declining economies this year, the downturn is an opportunity for Western coatings companies active in the area to reinforce their presence in preparation for the recovery.

Some economists are forecasting a rapid rebound in Eastern Europe once international demand starts to revive, particularly in Western Europe. The economies of most Eastern European countries are dependent on exports to the richer parts of Europe.