EUDR outlook

Despite the European economy’s already bleak growth prospects, EUDR is threatening to further reduce growth for at least the next three years

By Alejandro Mata, director, Europe packaging and graphic papers

The European Union Deforestation Regulation (EUDR), a pivotal component of the EU Green Deal, poses significant challenges for the pulp and paper industries due to ambiguities in its implementation, potential cost increases, and supply chain complexities. The regulation may lead to higher production costs, reduced competitiveness, and market disruptions for all targeted industries and derivative products. Concerns about meeting the requirements have continued to grow in recent months, prompting the European Commission to submit a proposal to delay the implementation of EUDR to December 30, 2025.

Previous viewpoints have explored the consequences of EUDR on the wider pulp and paper sector, stressing some of the effects industry players can expect after the regulations come into effect. On this occasion, however, we take a step back and analyze its potential macroeconomic effects.  

EUDR will have a relatively modest impact on GDP growth in Europe because its direct effects are likely to be concentrated in specific sectors. The regulation aims to limit deforestation-related consumption of items such as palm oil, soy, coffee, cocoa, and wood. Although the overall size of these sectors, relative to the entire EU economy, is small (less than 6% of European GDP), their relevance increases when combined with other sectors like wholesale and retail trade, transport, accommodation, and food services. Consequently, the impact can be significantly higher and more challenging to estimate. 

Upward pressure on prices

Implementing EUDR may raise import costs for certain goods because of stricter traceability and certification requirements. These increased costs may be transferred to consumers, resulting in a slight inflationary effect. While it may not significantly hinder GDP growth, its influence on consumer confidence could amplify and prolong its impact on European economic growth. 

Sector-specific effects

Sectors like agriculture, forestry, and food processing, which rely on imports of products potentially linked to deforestation, could experience disruptions.  

Trade relationships and imports

The EUDR may affect trade relationships with countries that have deforestation-related exports, such as Brazil, Indonesia, and Malaysia. These countries could face reduced access to the EU market, potentially leading to higher costs for substitutes or reduced import volumes. Each industry segment, however, has its own specific implications that are important to consider.  

Sustainable growth and long-term benefits

In the longer term, the EUDR could contribute positively to GDP growth by promoting more sustainable and resilient supply chains. Investments in green technologies, compliance systems, and sustainable agriculture could create new economic opportunities, offsetting short-term costs. Reducing deforestation contributes to climate mitigation, which helps prevent long-term economic damage from climate-related events. Furthermore, as the EU benefits from more sustainable supply chains and reduced environmental risks, long-term gains would depend on how successfully the regulation leads to innovation and cost-saving measures in sustainable production. 

With less than three months until implementation, the economic effects of the EUDR could become evident as early as next year. However, following the massive number of requests from within and outside the region, the European Commission is proposing a 12-month delay in its implementation, potentially delaying the EUDR-induced slowdown in GDP until 2026. The postponement, although still pending approval by the European Parliament and the Council, could allow companies to prepare in a more controlled way. This will reduce the risks of a more significant negative impact on the short-term economic growth of the region.

At Fastmarkets, we anticipate a decrease of up to half a percentage point in the projected EU GDP growth for 2026. While this figure may initially appear small, it accounts for up to 25% of the expected growth for that year. This impact is expected to diminish gradually through to 2029 as companies better understand the requirements and challenges related to complying with EUDR. In other words, the more time companies have to prepare for EUDR, the lower the initial cost for companies and the general economy. 

It is estimated that consumption in the European Union contributes to about 10% of global deforestation. The EUDR aims to shrink that footprint. Although this noble objective will generate numerous benefits in the long term, it will bring significant challenges for companies and industries affected by the legislation during the next three to four years.  

For the EU, the regulation might slightly increase consumer prices, lowering consumer confidence and possibly causing a loss in consumption. However, the long-term benefits, such as mitigating climate change and protecting ecosystems, could contribute to economic resilience and reduce costs associated with environmental degradation.