It's already been a month since the start of 2020. However, when it comes to predicting this year's economic trends, it seems that the international situation in various fields has gone beyond uncertainty and is heading towards chaos since the end of last year. However, 2020 is slated to bring even bigger events than last year. How should we view the luxury goods market in particular? Leading economic journalist Tomoyuki Isoyama analyzes and considers the situation.
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Concerns grow over a slowdown in the watch market in 2020
2019 was a year of extreme international turmoil, with the US-China trade war intensifying, protests in Hong Kong, and the UK's withdrawal from the European Union (EU). Dark clouds hung over the global economy, with China's economic slowdown compounded by a decline in global trade volume. Despite these circumstances, it's fair to say that global demand for luxury watches remained relatively strong.
The watch market in 2019
Swiss watch exports to the world appear to have increased for the third consecutive year. According to statistics from the Federation of the Swiss Watch Industry, cumulative exports from January to November 2019 totaled 19,947.2 million Swiss francs (approximately 2.2518 trillion yen), up 2.0% from the same period last year. With an annual growth rate of 6.3% in 2018, if exports had grown by around 4.9% in 2019, they would have surpassed the previous record of 222 billion Swiss francs set in 2014 for the first time in five years. However, the slowdown in growth appears to have put the record-breaking figure on hold.
Swiss watch exports peaked in 2014, then declined sharply for two consecutive years, hitting a low of 194 billion Swiss francs in 2016. They rose by 2.7% to 199 billion Swiss francs in 2017 and by 6.3% to 211 billion Swiss francs in 2018.
The focus of 2019 will undoubtedly be the unrest in Hong Kong, the largest export destination for Swiss watches. Cumulative exports from January to November fell sharply, down 10.6%. The dramatic change is evident from the significant 19.1% annual growth in 2018. The growing unrest, including the temporary closure of the airport, has had a major impact on the Hong Kong economy. The decline in travelers from China to Hong Kong in particular is thought to have dampened sales of luxury watches.
Watch demand in each country
Singapore and Japan have been able to reap the benefits of this situation. It is possible that Chinese tourists have avoided Hong Kong and switched to safer destinations such as Japan. While the number of foreign visitors to Japan in 2019 was 3188 million, an increase of just 2.2%, the number of Chinese visitors increased by 14.5% to 959 million. The cooling of Japan-South Korea relations led to a sharp decline in the number of tourists from South Korea, down 25.9%, but this was made up for by tourists from China.
In Japan, the consumption tax hike from October 2019 saw a surge in last-minute demand for high-priced items such as watches, jewelry, and precious metals up until September. This also led to an increase in imports of luxury brand watches. Swiss watch exports to Japan increased significantly by 21.4% from January to November. Exports to Singapore also increased by 13.8%.
Demand for watches is stronger than expected in the United States and mainland China. Swiss watch exports increased significantly, by 8.3% and 13.1%, respectively. This suggests that luxury goods are selling reliably despite the tariff hikes in the US-China trade war. In the US, stock prices have continued to reach new record highs, and the wealthy may have loosened their purse strings due to the "wealth effect."
Although the slowdown in China's economic growth rate is becoming clear, demand for luxury watches remains strong. As mentioned above, Chinese tourists are the driving force behind luxury watch purchases not only within China but also in Japan, Singapore, and European travel destinations.
Even though growth has slowed, the GDP growth rate in 2019 was 6.1%. Although it is the lowest growth rate in 29 years, a 6.1% growth rate for the world's second largest economy still generates tremendous purchasing power. It is clear that Switzerland is transforming into a global "consumer power," which is linked to an increase in Swiss watch exports.
Market trends in 2020
The question is how to view the luxury goods market in 2020. While it will be important to keep an eye on whether exports to Hong Kong, the largest market, will recover, the biggest focus will likely be on trends in domestic consumption in the United States and China. In terms of export destinations for Swiss watches, attention will be focused on the extent to which domestic consumption in Japan will increase following the consumption tax hike, and on the state of inbound demand, particularly from Chinese visitors to Japan.
There are also concerns about the future. Looking at the 30 countries and regions to which Swiss watches are exported, only six saw a decline in 2018, but in 2019 that number increased to 17, meaning that more than half saw a decline. This clearly indicates that an increasing number of countries and regions are experiencing an economic slowdown.
Economic journalist. Born in Tokyo in 1962. Graduated from the School of Political Science and Economics at Waseda University. Served at the Nikkei Inc. as a securities reporter, deputy chief of the same department, Zurich bureau chief, Frankfurt bureau chief, and deputy editor-in-chief and editorial committee member for Nikkei Business, before going independent at the end of March 2011. His books include Between Reason and Emotion: Thinking About Corporate Governance from the Perspective of Otsuka Furniture and The Secrets of Switzerland, the Brand Kingdom (both published by Nikkei BP). He is currently covering a wide range of topics in politics, business, and government, with a focus on economic policy.
http://www.hatena.ne.jp/isoyant/
