Economic Thoughts: Impressions

What’s striking recently is the retreat of Chinese luxury, the impression of weak global industry but strong services sectors, weak developing but resilient developed market economies, the advance of Putin, the SA drought, and EM & commodity producer woes. But is it transitory or more permanent?


For some months now, there is the suggestion of severe curtailing of high-end Chinese luxury retailing.


For some observers, it is a matter of demand, possibly straightforward (Chinese stock market turmoil & associated wealth losses and increased caution) since mid-year. For others, it reflects a maturing of Chinese upper-end consumers, increasingly worldly and no longer quite so uncritically taken by the by now commoditized luxury brands. Then there is the Chinese government cleanup, focused on restraining corruption, and this cutting into the luxury consumer segment, reducing its attractiveness as bribes or gifts. Time to hide wealth ill-gotten rather than flaunt? Show-offs (temporarily) in retreat?


None of it particular reflective of the strength of the Chinese consumer, or its broader economy, possibly only temporary in nature, but there could be a structural (longer lasting) element, too.


Lastly there is the supply phenomenon of global luxury companies having betted wrongly in their Chinese store location, being tempted by too many second-tier cities whose upper-end middle class potential may not have been as great as believed, now inviting belated culling of poorly performing stores.


Global industry this year has gone through bit of a dip, focused on China, but no good explanation forthcoming why goods-manufacturing was strained even while services (with 85% of employment in developed countries) has steadily advanced. Energy sectors have suffered, and there was more global uncertainty during 3Q15 due to Chinese events, reducing risk-taking, reflected in more tepid business investment & more cautious ordering & inventory levels. These, though, should be transitory factors.


Equally stark has been the steadiness in developed country growth even as many developing countries stood back. China throttled back, commodity producers suffered severely from export price declines, to the point of recession, and key manufacturing hubs incurred strain. But all of it transitory adjustment?


The great comeback artist of 2015 turned out to be Putin, partly helped by events, but seemingly mostly through own effort. By standing back in Ukraine, and shifting focus to Syria & Iran, getting involved in war efforts there, he found ways to get readmitted to global negotiating forums. Neat. Whether this will contribute anything to the bottom line, resulting in permanent favourable outcomes in the region, remains to be seen.


There is a view that says a problem identified is a problem solved, but the larger Middle East still gives the impression of a region steadily careening further out of control as historical strains mature rather than being the peons of global proxy conflicts addressed at will. If the former, global statesmen posturing importantly won’t change much about the greater backdrop of intensifying conflict.


Rumours of interior rains welcome, but will it break the SA drought condition? The damage done so far this year to agriculture has already been major. Too early to tell what can be salvaged?


The commodity price declines have yet to end, as weak demand & oversupply keep exerting relentless pressure, for instance Brent oil eyeing $40. Will 2016 offer a bottom? Or will it all be a lot deeper & longer before coming up for air?