With a low +0.8% growth, China’s GDP raises concerns for the luxury segment

With a low +0.8% growth, China’s GDP raises concerns for the luxury segment

Concerns for the luxury segment are concrete now. The results of the GDP growth for China’s economy are tangibly slowing: China’s GDP during the second half of 2023 recorded a low increment of +0.8%, compared to the first, and of “just” +6.3% on yearly bases, against the target +7%. Authorities have, in the last few weeks and multiple times, that there is no risk of deflation. But the situation, whatever they may say, is delicate.

Why +0.8% isn’t enough

The weakness of China’s economy, at a time when everyone expected a post-Covid takeoff, is clear. Foreign news sources try to explain the reasons behind the basis of the crisis. Some have to do with foreign relations. Trade with partners has decreased, and reshoring and de-risking strategies have taken away revenue as well. Additionally, inflation joined the mix, effectively limiting the spending power within Western countries. The outcome: manufacturing entities suffer, and the trade balance is deteriorating. But there are other aspects negatively impacting the People’s Republic’s economy, such as the housing market. Beijing needs fiscal and monetary stimulus to improve the current status, says the Financial Times, but President Xi Jinping appears to be focused on two fronts: containing debt and technological self-sufficiency.

That’s the reason for the alarm

The results published over China’s GDP quarterly data has right away hit its first victim. Richemont’s stock price closed the July 17th session in Zurich with a 10.43% loss even if the semester’s data was positive. That’s because a good portion of the results were pushed by Chinese consumption. It’s true that luxury is not cyclical and that it speaks to the wealthier end of the population, thus suffering less from crisis. Yet, it’s also true that if the signs of a slowdown come from the reference market (China), and the second (USA) are also slowing, analysts start taking negative forecasts more seriously. La Stampa recaps the losses incurred by fashion companies on the stock market: Hermès lost 4.21, LVMH 3.73%, Moncler 2.91%, Kering 1.95% and Ferragamo 1.01%.

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