The economic rhetoric is getting worse — and clearer — lending an urgency to calls that the world needs to prepare for tougher times now.
While the language of economics is so often inscrutable — aimed at people who spend their days poring over trade balances — increasingly blunt pronouncements from the top of the financial world are underscoring just how much risk lies in the year ahead.
Pierre-Olivier Gourinchas, economic counsellor at the International Monetary Fund, warned on Tuesday that central bankers around the world need to keep a steady hand.
“As the global economy is headed for stormy waters, now is the time for emerging market policymakers to batten down the hatches,” Gourinchas said. “Too many low-income countries are in or near debt distress.”
The IMF continues to see global economic growth of 3.2 percent this year, but cut its outlook for next year to 2.7 percent growth, shaving 0.2 percentage points off its July forecast.
“The global economy continues to face steep challenges, shaped by the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China,” Gourinchas said.
Countries accounting for one third of the global economy are expected to see their economies shrink this year or next while the world’s three largest economies — the U.S., China and the euro area — will all continue to stall, according to the IMF.
“This year’s shocks will reopen economic wounds that were only partially healed post-pandemic,” Gourinchas said. “In short, the worst is yet to come and, for many people, 2023 will feel like a recession.”
It could feel worse all around as the IMF put the odds at one-in-four that global growth would fall below the historically low level of 2 percent next year.
And some of the shocks reordering the world seem to be here to stay.
“The energy crisis, especially in Europe, is not a transitory shock,” Gourinchas said. “The geopolitical realignment of energy supplies in the wake of the war is broad and permanent. Winter 2022 will be challenging, but winter 2023 will likely be worse.”
If there is need for a wake up call, it might be because the slowdown is just starting to spread to some corners of the business world. Walmart warned earlier in the year that inflation was forcing some tough choices for low-end consumers. And recent reports from further up market — from Levi Strauss, Vans parent VF Corp. and Nike — have all indicated that higher end consumers are reacting too.
The disconnect between much of the fashion industry and the broader economy seems to be ending.
Up until recently, many consumers seemed to be happily spending away.
Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., said at the JPM Techstars conference on Monday that U.S. consumers and businesses have actually been doing pretty well.
“Consumers have money,” he said. “Fiscal stimulus, they still have more than they had before. They’re spending 10 percent more than last year, 35 percent more than pre-COVID-19. Their balance sheets are in great shape…even if we go into recession, they’re going to be in better shape than in ‘08 and ‘09. Companies are in good shape.
“But you can’t talk about the economy without talking about the stuff in the future,” he said. “And this is serious stuff. This is inflation…it’s rates going up…it’s the war. These are very serious things, which I think are likely to push the U.S. and the world. I mean Europe is already in recession; they’re likely to put the U.S. in some kind of recession six to nine months from now.”
Dimon did have one guarantee — that the markets would be volatile. So far, the market has been down, but functioning.
“I think, possibly, you’re going to see it get disorderly some time in the not too near future,” he said.
“Disorderly” here is a bit of a euphemism for a market on the run and not really functioning properly.
That speaks to a global economic system — perhaps a world order — that’s not just absorbing a slowdown or shock, but fracturing under unprecedented pressure.
The strain is just now starting to hit brands that were able to power through the weaker economy earlier in the year.
Chip Bergh, CEO of Levi Strauss & Co., told WWD last week: “There’s no question that the environment has gotten more challenging in the last quarter. The combination of inflation, fears of recession, the actual impact of inflation on consumers — we definitely saw demand begin to soften….Foreign exchange has definitely had an impact.”
A similar sentiment will no doubt be on the lips of other fashion CEOs as quarterly reports roll out.
The very pinnacle of the industry, though, might still be skating through — for now.
Luxury leader LVMH Moët Hennessy Louis Vuitton on Tuesday posted a 19 percent increase in third-quarter revenues, the economy not withstanding.
On a call with analysts, Jean-Jacques Guiony parried a question on, as he described it, “the divorce between fundamentals and luxury-nomics” and said simply, “luxury is not a proxy for the general economy.”
“We don’t necessarily sell to rich people but we don’t necessarily sell to the average households,” Guiony said. “We end up selling to affluent people and they have a behavior on their own, which is not necessarily totally aligned with economics or GDPs ups and downs. It doesn’t mean that these people are insensitive to the general economic situation. It means that they usually…react to different stimulus. As we said many times, I mean they are much more sensitive to the shocks, be they real estate value, be they stock market, etc., rather than to fluctuations in GDP changes.”
But if the market goes from down but orderly to, as Dimon said, disorderly, there might well be enough shock to go around.