What’s Going On Here?Data out on Friday showed China’s normally imposing economy shrank by 6.8% in the first quarter versus the same time last year – its first decline since records began. What Does This Mean?Economists predicted China’s economy would shrink, sure, but not by as much as it did. Turns out consumers were slow to splash their cash when some businesses reopened in March: retail sales, for instance, were down 16% last quarter versus a year ago. Still, it wasn’t all bad news: the country’s industrial production shrank by a better-than-expected 1% as its factories sprang back into action, and its unemployment rate in March fell from February’s record high. Why Should I Care?For markets: Life’s little luxuries.
Chinese consumers typically account for a third of the world’s luxury purchases, so the country’s return to business – slow though it is – bodes well for the world’s biggest luxury conglomerate, LVMH (tweet this). The company said as much late last week, revealing that sales of some of its brands were up by more than 50% in late March and early April. That influx of luxury shoppers is a rising tide which is lifting several boats: not only did LVMH’s shares climb on Friday, those of Gucci-owner Kering and cosmetics brand L’Oreal did too – with the latter saying that despite falling global sales last quarter, China’s recovery will mean this quarter’s are stronger.
The bigger picture: Just add government support.
There are limits on how quickly China’s economy can grow in the next few months given that international buyers of its wares – including major customers in the US and Europe – are still effectively closed for business. It’s probably no bad thing, then, that the Chinese government has said it’ll cut interest rates further in order to encourage domestic spending, as well as help banks lend more to companies that are getting less international business than they’re used to. | 