LONDON — There was a brief, glittering moment in mid-September when Scotland voted to remain part of Great Britain — as a result, the pound hit a two-year high against the euro and a two-week high against the dollar, while businesses across the U.K. and elsewhere breathed a collective sigh of relief.
Buoyed by the vote of confidence in a unified Britain, Jimmy Choo immediately announced plans to proceed with its initial public offering, as did a slew of other businesses, including Virgin Money.
But the glitter faded quickly. Jimmy Choo went ahead with its IPO and its debut on the London Stock Exchange was modest, even after the company set its list price at the bottom of the proposed range. Virgin Money, meanwhile, put its plans on ice, citing market volatility, while other IPO candidates tended toward private sales rather than stock market listings.
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It hasn’t been an easy autumn for many European businesses, and while there are pockets of growth expected going forward, the future of the euro zone economy and that of the rest of the world over the next six months is clouded with doubt.
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“In one word, the outlook for 2015 can be summed up by ‘uncertain,’” said Sarah Boumphrey, head of strategic, economic and consumer insight at Euromonitor International, a market research, data and analysis firm. “Seven years on from the financial crisis the global economic recovery remains disappointingly fragile.”
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Boumphrey added that she is expecting stronger growth in 2015, driven by a pick-up in major markets, including the U.S., the euro zone, Japan and India.
“We expect global real GDP growth to increase to 4 percent, the strongest rate of growth since 2011,” she said. “Yet the outlook for 2015 remains clouded by myriad risks, notably geopolitical instability in the Middle East and Ukraine, and any potential flow-on effects on commodity prices; the threat of deflation in the euro zone; tightening monetary policy in the U.S.; continued fears over the China slowdown; the lingering debt burden and a deepening of the Ebola crisis.”
Tourist spending worldwide is also on the wane. Global Blue, once a proud purveyor of statistics about rising tourist consumption worldwide, no longer releases its monthly figures to the press. Germany, meanwhile, stands on the brink of recession. Standard & Poor’s recently slashed France’s credit outlook to “negative” as the country struggles to show some economic growth, while a deputy governor of the Bank of England has admitted he’s stumped by the U.K.’s recent indicators — economic recovery and a rapid fall in unemployment, but weak pay growth.
“There is now a new puzzle: Why, despite this rapid fall in unemployment to 6 percent, have we seen such weak pay growth in the official data?” said Sir Jon Cunliffe, deputy governor for financial stability of the Bank of England, during a speech late last month.
Cunliffe added that he would be in no hurry at all to raise British interest rates from their record low of 0.5 percent or to amend current monetary stimulus measures.
Experts including Howard Archer, IHS Global Insight’s chief European and U.K. economist, said in a recent report that it looks likely the European Central Bank will sit tight on interest rates and probably remain in “wait-and-see” mode until next year. The ECB’s benchmark rate currently stands at a record low of .05 percent.
Luxury goods companies have unabashedly warned of the dark days that could well lie ahead. Last month, Burberry flagged “an uncertain economic and financial environment,” going forward. Bain & Co. and Fondazione Altagamma said growth in the luxury sector will slow to 2 percent this year, blighted by the Crimean crisis, record cold in North America, the two Malaysian Airlines incidents, the political demonstrations in Hong Kong and declining consumer confidence in Europe.
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The news from Hong Kong and Mainland China has not been good. Luca Solca, managing director at Exane BNP Paribas, recently returned from the region and said luxury players need to reduce their exposure to Hong Kong in the medium term, following a Golden Week where sales were down 15 to 35 percent due to political protests.
Solca said the Mainland Chinese market remains difficult.
“The order of the day seems to be that of a sobering and more reasonable consumer,” Solca said. “Anticorruption is still on at full blast, prompting a prudent and low-profile behavior by those in high places. Macroeconomic growth continues to weaken and consumer sentiment is weakening on the back of declining real estate prices.”
However, there are some indications that the early part of next year won’t be all Sturm und Drang. According to the European Commission’s Economic Sentiment Indicator, sentiment picked up in the European Union and the euro area in October after four months of stagnation or decline, rising just above its long-term average of 100. The rise was due to an improvement in confidence in all business sectors, with significant rises in retail trade, services and construction. Consumer confidence, however, remained flat compared to the previous month.
While a big question mark hangs over growth prospects in Europe, the Middle East and Asia, there seems to be no question that one country — the U.S. — is on the rise. The American economy expanded at an annualized rate of 3.5 percent in the third quarter, outstripping analysts’ expectations, and spurring the Federal Reserve to wind down quantitative easing — put into lower interest rates and spur economic growth — after five years.
While Boumphrey of Euromonitor isn’t overly pessimistic about next year, she’s not in a celebratory mood, either.
“All in all, 2015 looks to be stronger than 2014, but risks are on the downside, meaning any revision to the outlook is likely to be downward rather than up,” she said. “Growth prospects also continue to be uneven. At the risk of sitting on the fence, my opinion is that we should be extremely cautious about the pick-up. Let’s face it, we’ve been disappointed before. To end on a more positive note, at this point, an all-out crisis does not seem likely, but 2015 should be more a case of a continued small step in the right direction with bumps along the way.”