Watch Economic Observatory / Luxury watch demand indicates economic recovery from COVID-19

The global spread of the COVID-19 virus, which has been ongoing since 2020, has caused significant damage to the economies of many countries. However, differences in the rate of economic recovery have recently emerged between countries and regions. Leading economic journalist Tomoyuki Isoyama analyzes and considers the economic situation around the world, including the United States, China, and Japan, using data from the top 30 markets for Swiss watch exports.

Demand for luxury watches indicates economic recovery from COVID-19

　Which country became the world's largest market for luxury watches in 2021? While it is difficult to accurately determine the size of the luxury watch market by country or region, the export destinations of Swiss watches, which we often cover in this column, provide a clue. In 2020, Hong Kong, which had previously been the top export destination, fell from its status as a "free trade city" due to the crackdown on pro-democracy movements, including the implementation of the National Security Law, and it also lost its long-standing position as an export destination for Swiss watches. Meanwhile, China (mainland) made a sudden leap to become the world's top market, overtaking the United States, which saw a decline in demand due to lockdowns caused by the spread of COVID-19.

Will the US or China be the top export destination in 2021?

　Of the top 30 markets for Swiss watch exports in 2020, only three saw an increase compared to 2019. While all major countries saw declines of 20-30%, China was the only one to record a 20% increase. This was largely due to the early containment of the COVID-19 pandemic and the recovery of economic activity. In other words, these statistics provide a glimpse into the extent of economic recovery from the COVID-19 pandemic.

　So what about 2021? Unfortunately, at the time of writing, full-year figures have not been compiled, but the general trends can be seen from data from January to November.

　As of November, the top export destination was the United States, with 2,802.2 million Swiss francs (approximately 348 billion yen). China was in second place with 2,736.4 million Swiss francs (approximately 340 billion yen). The difference is so small that it is entirely possible that the two countries could change positions depending on the export figures for December. Will China remain the top export destination for the second year in a row, or will the United States take the top spot?

The US economy is recovering, while the Chinese economy is slowing

　The reason the United States, which was in second place in 2020, has now caught up with China is, of course, economic recovery. While the number of COVID-19 infections remains high, the number of deaths has decreased thanks in part to the effectiveness of vaccines. Economic activity has recovered rapidly. The Christmas shopping season in December, when Omicron stocks spread rapidly, was also quite lively. The US economy is performing so well that it is almost overheating, and rising prices (inflation) has become a major issue. The US Federal Reserve has immediately begun a "tapering" process to reduce its quantitative easing policy, and interest rates are expected to rise in 2022.

　That's how strong the U.S. economy is. The actual value of gross domestic product (GDP) has already recovered to pre-COVID-11 levels. As a result, demand for luxury goods such as watches and jewelry is booming. As of November, Swiss watch exports to the U.S. were up 55.7% compared to the same period in 2020.

　Meanwhile, exports to China are also continuing to increase, but the growth rate is only 31.0%, which is lower than that of the United States. While China's economic growth has slowed, it is also believed that its "zero COVID-19 policy" is having an impact on the economy. While the United States has adopted a "with COVID-19 policy" that keeps the economy going even if the COVID-19 infection spreads to a certain extent, China has aimed to achieve zero infections by completely sealing off the area in which an infection occurs. As a result, travel between China and other countries has become extremely strict, and although China was the first country to recover its economy, this has now cast a shadow over the country.

Demand for luxury watches recovers in various countries

　So, how are other countries recovering economically from the COVID-19 pandemic? Of the top 30 markets for Swiss watch exports in 2021, 28 countries and regions saw significant increases, with an average increase of 33.6%. Major countries that surpassed this include Singapore (6th place) with a 39.0% increase, France (9th place) with a 48.3% increase, Italy (10th place) with a 35.9% increase, and Spain (12th place) with a 35.8% increase.

　Exports to Japan, the world's fourth largest exporter, increased by 21.1%, a slower growth rate than Germany, which ranked seventh, at 20.3%. This may be seen as an indication that the country has not yet fully recovered from the effects of the COVID-19 pandemic.

　Incidentally, 12 out of 30 countries and regions saw their exports increase in 2021 compared to 2019, before the COVID-26 pandemic. The United States saw a 4% increase, China a 53.5% increase, the United Arab Emirates a 6.2% increase, and Australia a 17.1% increase.

　Ultimately, it is only natural that demand for luxury watches will surge in countries and regions that have overcome the COVID-19 pandemic and are seeing a return to economic activity, but it remains to be seen whether demand will actually grow in Japan. With the yen continuing to weaken, there is a possibility that import prices will rise, dampening consumer spending.

Tomoyuki Isoyama
Economic journalist and professor at Chiba University of Commerce. 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. Left the company in 2011 to go independent. Covers a wide range of political, government, and business figures. His books include "The International Accounting Standards War: Final Chapter" and "The Secrets of Switzerland, the Brand Kingdom" (both published by Nikkei BP).
http://www.isoyamatomoyuki.com/