Lessons to learn from Swiss watches
IT is my favourite fact of the day: exports of Swiss watches jumped by an astonishing 40 per cent in May. Exports to China were up 41 per cent in May, to South Korea by 39 per cent and to Singapore by 35 per cent. Even Western demand is recovering, albeit not by as much. Swiss watches are not exactly a mainstream industry – but they make for a fascinating indicator and highlight several important lessons we must all learn.
The first is that countries that specialise in high value added products – even manufactured goods – can still do extremely well. Being the best at something very special and unique almost guarantees success. This can be goods, agricultural products or services such as foreign exchange trading or private secondary education. The second lesson is that it confirms the growing importance of Asia; the Merrill Lynch Cap Gemini world wealth report this week revealed that there are now more people with liquid assets of $1m or more in Asia than there are in Europe. This is not a zero sum game: the City has a huge opportunity to sell its wares to Asia. At the moment, this opportunity is partly being squandered by self-inflicted regulatory and tax attacks on our competitiveness.
The third lesson is that while overall consumer spending is growing only marginally in many Western economies, there is plenty of demand for premium products globally. The better-off have bounced back from the recession because their wealth and incomes are highly leveraged to the economic cycle. What is clear is that the boom in the emerging world is incredibly exciting and is doing wonders to cut poverty. World trade is set to rise from $37 trillion in 2010 to $150 trillion in 2030 (in constant dollars) and $370 trillion by 2050. The explosion in wealth this entails is mind-boggling. Intra-emerging markets trade is set to overtake trade within advanced economies by 2015 and overtake trade between advanced economies and emerging markets trade by 2030, according to Citi. But the opportunities are immense for individuals, companies and countries that are willing to fight for them, as I argued last night in my speech to the Lord Mayor’s excellent formal dinner for the property industry at Mansion House. We need to be on the right side of history – that means being sufficiently competitive, educated and savvy to cash in on the next few decades of booming trade.
OIL POLITICS GONE MAD
IT is good news for consumers that the International Energy Agency (IEA) has chosen to release 60m barrels of oil from its strategic inventories. At first sight, the rationale looks clear: the IEA is trying to compensate for the reduction in Libyan supply, though this is a bit strange given that the soft patch in the EU, UK and US economies means that demand for oil ought to fall.
What is really happening is that the IEA is trying to act like a modern central bank: it is attempting a hubristic game of aggregate demand management, hoping to boost consumer and corporate spending on non-energy items by temporarily pushing down the price of oil. It is a dangerous game and it won’t work – though Barack Obama will of course be hoping to benefit politically. The price of oil won’t stay low for long, so the IEA will have used up a chunk of its reserves for not very much gain. Rather than going for short-term bursts of stimulus, the IEA would be better off holding its fire in case of a real crisis.
allister.heath@cityam.com
Follow me on Twitter: @allisterheath