Declining US home sales, an increasing trend of workers returning to office environment, and the increasing risks of an economic downturn have contributed to the slowing down of furniture demand in Malaysia, according to a report by Hong Leong Investment Bank (HLIB).
This, in turn, diminishes the prospects of a recovering wood and wood-related industries, in spite of the ease in raw material costs and supply chain issues, reported The Edge Markets.
In the first 10-month period of 2022, Singapore registered as the largest growth as an exporter of Malaysian furniture, with a 47.2% increase.
The US still remains the largest overall exporter, making up 57.3% of total export value for the period.
The decline in US home sales thus has a negative impact on Malaysian furniture sales, according to HLIB’s report.
Workers returning to office and the reopening of borders also meant that consumers are expected to start spending more on international travel, rather than home goods, like new furniture.
Moreover, HLIB reported that the weakening of the US dollar against the ringgit is a bane for the wood manufacturing sector as most of its revenues are denominated in the greenback.
“Should global furniture demand take a downturn as a result of economic slowdown while the ringgit continues to strengthen against the greenback, there might be further margin compression ahead for the wood manufacturing sector,” as mentioned in the report.
HLIB hence downgraded the Malaysian furniture sector to “neutral” from “overweight”.
It also expects panelboard manufacturers, such as Evergreen Fibreboard and Heveaboard, whose export targets are not from the US, will fare better.
“These markets are expected to be more resilient compared to the US market and as such, the panelboard makers should fare better than the furniture makers as they would not be significantly impacted should there be an economic recession in the US,” the report stated.
Source: The Edge Markets