Watch Economic Observatory / China's Demand for Luxury Watches Remains Solid Despite Slowest Growth in 28 Years

　Global demand for luxury watches remained relatively strong in 2018. Swiss watch exports to the world appear to have increased for the second consecutive year, following 2017. According to statistics from the Federation of the Swiss Watch Industry, cumulative exports from January to November 2018 totaled 19,539.4 million Swiss francs (approximately 2.146 trillion yen), a 7.1% increase over the same period last year, and are expected to surpass the 20 billion Swiss franc mark for the first time in three years. By the time this magazine reaches you, the federation will have released last year's statistics.

　Exports in 2017 totaled 19,923.8 million Swiss francs, a 2.7% increase over 2016, and 2018 is expected to have exceeded this growth rate. This would make it the first "good" year since 2012, when exports grew by 13.1%.

　Swiss watch exports peaked at 222 billion Swiss francs in 2014, then declined significantly for two consecutive years, dropping to 194 billion Swiss francs in 2016. After hitting bottom, they began to rise in 2017.

　The strong performance in 2018 was due to the large growth in Hong Kong, the largest export destination for Swiss watches. The cumulative increase from January to November was 21.0%. This is sure to far exceed the 6.0% annual growth rate in 2017.

　Furthermore, exports to mainland China, the third largest export destination, grew by 14.2% through November 2018. While this is an inevitable slowdown compared to the 18.8% annual growth rate in 2017, it is still a double-digit increase. Following an announcement by Chinese authorities on January 21, 2019, the media unanimously reported, "China's GDP growth hits lowest in 28 years." The report stated that China's GDP growth rate for the full year of 2018 was 6.6%, the lowest since 1990, the year after the Tiananmen Square incident.

　While there is certainly a "slowdown," China is now the world's second largest economy after the United States. It has long since overtaken Japan. It's amazing that such a large economy is growing at 6.6%. Moreover, China is shifting from an "export nation" as a production base to a "consumer powerhouse" aiming for growth through domestic consumption. It's safe to say that this consumption power is linked to the increase in Swiss watch exports.

　In an economic structure that shifts from production to consumption, we should think that there is still a large potential demand for luxury watches in China. Of course, it is also safe to assume that demand for watches in Hong Kong, which is heavily influenced by the Chinese economy, will not fall so easily.

　The United States, another major consumer, is the world's second-largest market for Swiss watch exports and is also doing well. Exports to the United States peaked in 2015 and have been declining for two consecutive years, but 2018 is sure to be positive. The cumulative growth rate through November reached 8.1%. It can be said that American consumption has completely bottomed out.

　Japan, despite its reportedly sluggish consumption, has maintained a strong performance, increasing by 10.1% through November. While Japan was the fifth largest export destination for Swiss watches in 2017, it is almost certain to rise to fourth place in 2018 due to a slowdown in exports to the UK.

　So what will the luxury watch market be like in 2019? There are many uncertainties, such as the US-China trade war and the issue of Britain's withdrawal from the European Union (EU). Nevertheless, exports to Hong Kong, mainland China, and the US are likely to remain strong. Even if the growth rate slows, China's presence in global luxury goods consumption is likely to remain large. Looking at the year as a whole, it is certain that the market will remain dependent on China's growth.

　Japan is scheduled to increase its consumption tax in October. Anticipating the tax hike, department stores and other retailers are holding sales in advance, spurring last-minute demand. Considering annual statistics, the impact of the tax hike will only last about three months, so it's possible that the surge in demand will actually increase sales.

　Meanwhile, a slowdown is clearly a concern for the UK. If negotiations on the terms of its departure from the EU fail to reach an agreement and a "hard Brexit" occurs, in which the UK leaves without an agreement, it is likely to cause major disruptions to logistics and deal a major blow to the UK economy. Companies, particularly in the financial sector, are shifting personnel to continental Europe, and the resulting negative impacts will be significant. Economic uncertainty in southern Europe, including Italy and Spain, also remains a concern.

　Although the outlook is becoming increasingly uncertain, consumption is likely to remain relatively solid this year.