China’s Economy Is Growing More Slowly, And That’s Hurting The Luxury Industry

What’s going on here?

China’s economy grew at its slowest pace in five quarters, and that demure attitude is causing a faux pas in the luxury market.

What does this mean?

China’s economy was just 4.7% bigger last quarter than the same time last year, short of Bloomberg’s 5.1% prediction. That’s mainly because the country’s real estate market is still in turmoil, with property sales coming in around 14% lower this June than last. So, on edge about the value of their biggest financial asset, homeowners are keeping their wallets shut. That explains why retail sales were only 2% higher this June versus last year, far off the expected 3.4%. And despite new government incentives, car sales dropped by 6.2% in the same period – their biggest fall in over a year.

Why should I care?

For markets: When Chinese shoppers sneeze, luxury brands catch a cold.

As the world’s second-biggest economy, China is usually a reliable market for the finer things in life. But now, shoppers are drawing the line at browsing. Swatch Group, for example, reported on Monday that slow sales in China caused worse-than-expected sales and profit last quarter, pushing investors to send the watchmaker’s stock down 10%. Burberry’s stock fell on Monday too, by 16%. The luxury brand issued a profit warning the same day, citing limp demand in China – a concern shared by LVMH, Hermès, and Prada, all of which have been watching their share prices slip.

Source: Google Finance

The bigger picture: It’s out of China’s hands.

The upcoming US election could have serious consequences for China. Former president Donald Trump plans to stamp a 60% tax on anything imported from the country – a figure that would hamper its all-important manufacturing industry, potentially encouraging an all-out trade war. And following news of the attempted assassination, the market is pricing in a 70% chance of the former president winning the keys to the White House.