European decorative paint market on the rebound: Slow recovery after challenging years
The decorative paint market in Europe remains challenging. But there are some positive signs that perhaps improvement in the economic environment will begin. The construction industry does remain challenged, and the DIY consumer is more price sensitive than before the pandemic. But we do think that the decorative market will start to rebound in 2025; although we think that the rebound will be slow. Douglas Bohn, Orr & Boss Consulting
We estimate the European paint market to be 4.5 billion litres and EUR 21.1 billion in 2023. Germany, France, Italy, UK, and Spain are the major countries. The downturn in the European decorative markets since early 2022 have resulted in shifts in the country positions. Germany is still the largest decorative market in Europe, but it is not as strong as previously since the construction market in Germany has declined faster than in other countries. Italy and Spain have had stronger construction markets and thus are grown as percentage of the total European market. Nonetheless, the top five countries of Germany, France, Italy, the UK, and Spain have remained the largest decorative coatings markets in Europe and are above 50 % of the market.
The sub-segment split of the market depends upon the country. Overall, we estimate the DIY is 35 % of the European decorative paint market with it being a bit higher in Germany and France and a it lower in Poland and other Eastern European countries as well as other countries like Portugal. As mentioned above the market has been challenging for the last two and a half years. Starting in early 2022, the market started to decline. Since the peak in 2021, the market is down 15 % in volume terms.
Construction Market
The market decline has been uneven with Germany declining the most while countries like Italy, Spain, Portugal, and other have a done better. The overall market decline has been driven by declining construction activity in Europe. The below two graphs show this. The first graph gives an index of the overall construction market in the EU. As can be seen, the EU construction market has declined nearly every month since February 2022. Recently the market has stabilised but it is still far below where it was in early 2022.
Country by Country Level
On a by-country level, the construction market has declined the most in Germany, France, and Poland. Whereas in some of the Southern European countries like Spain, Portugal, and Italy the construction market has shown some slight growth.
Of course, new construction and building is not the only factor impacting the decorative paint markets. The DIY as well as the contractor repaint market is by consumer sentiment. Due to the inflationary pressures and relatively high interest rates in the economy now, consumers have been looking for ways to decrease their expenses which has resulted in their reducing expenditures on paints. This has resulted in in pressuring the decorative paint market in some countries.
A summary of the decorative paint market in some of the key countries is given below.
Germany: The environment in Germany continues to be challenging. The decorative market in Germany was among the fastest growing in the 2010s. That growth has resulted in a steeper fall now that the market is declining. The other factors influencing the decorative coatings market are similar as in other markets. Higher prices and interest rates depressing consumer spending and construction. Overall, we think that the decorative paint market volume in Germany may be down 25 % since its peak in 2021.
France: The construction in France is also struggling. Building activity and consumer confidence has declined impacting both the new build and the repaint markets. We estimate that the market declined in the 2-4 % volume range in 2023 with a similar decline expected in 2024.
Spain and Portugal: In 2023, the Iberian decorative market experienced a slight rebound after declining in 2022. As shown in the above chart, the construction and building index showed some growth in 2023. This led to some slight growth in both the Spain and Portugal decorative paint markets.
Italy: Italy was growing due to government incentives related to exterior façade renovations. These government incentives ended in 2023. Nonetheless, there continues to be some slight growth in Italy decorative market.
UK: In the UK, volume was down an estimated 2 % in 2023. So far, volume is close to flat in 2024.
Forecast
The inflationary pressures are easing and interest rates are starting to be reduced. As of the writing of this article, the European Central Bank has made one interest rate reduction. The expectation is that there will be more. This should help normalise the markets and lead to a pickup in the construction markets. Although we think that the rebound will be modest and that it take a number of years for the market to regain the 15 % volume that has been lost since 2021. Given the expected interest rate reductions, we think that the European decorative market will grow by a CAGR of 1.2 % through 2029.
Conclusion
It has been a challenging three years. With the start of the Ukraine war, the 2022 energy crisis and the interest rate increases, the European decorative market has declined by 15 % volume since its 2021 peak. We do think that most of the downturn is behind us. Some of the southern European markets are starting to grow like Italy, Spain, and Portugal. The construction markets do remain challenging in Germany, France, Poland, and the other European countries. But we are hopeful that as interest rates are reduced, the construction markets in those countries will benefit.
