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The global fashion business journal

Oct 19, 20197:29am

A Changing World: the new global economic board

Fashion business, one of the most global in the world, faces a changing environment, with an economic downturn and where protectionism threatens to mark the development of the two biggest world economies.

Jan 8, 2019 — 10:00am
Iria P. Gestal
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A Changing World: the new global economic board

 

 

Fashion business’ game board has turned around. The legacy of the crisis, instability, the peak of populist movements, the attempts to move backwards in globalization and the threat of the global economic downturn has made almost all the predictions fail one by one. The world undergoes a transformation, and fashion, as a global player, must adapt and transform with it. Modaes.es will go through the keys for the new order in the most important markets in the sector and how this can affect one of the most globalized business in the world.

 

The world’s board has taken a turn. Twenty years ago, China was the seventh biggest economy in the world, in the peaceful context post World War it moved into the Western world and globalization was in a process of expansion. Twenty years later, everything has changed: China and India escalated to top five, the two largest powers in the world, threaten to revert globalization and doctrines deemed to belong to the past come back to political speeches.

 

Fashion, one of the most global sectors, has to make a move in a board that has nothing to do with the one it was taken for granted when most of the current companies started the game, in which volatility, uncertainty, complexity and ambiguity (VUCA) mark the zeitgeist, spirit of the age.


The term VUCA was coined in 1987 to describe volatility, uncertainty, complexity and ambiguity in the world after Cold War, though it was not until early 21st century when it started to be widely used outside military settings.

 

Its most massive use coincided with the appearance of another concept, the black swans, which makes reference to those event of great impact, yet unpredictable, that over time are rationalized as if they could have been expected.

 

 

 

 

The 21st century started, in fact, with two black swans: the attacks of 11 September and the global economic crisis, and the backlash of both still defines the worlds’ setting today.

After the crisis and the second Gulf war, the world opened the way to a new context, marked by the interruption of global players, the right-wing populism, the two powers’ protectionist drift, the threat of Islamist terrorism and the economic downturn.

 

Even though the United States continues being the first power in the world, China is not far behind it after a fast restructuring plan towards a consumer economy and an opening to the world, which even entailed its entrance to the World Trade Organization (WTO) and the consequent change in global trade networks.

 

Brazil and Russia, which alongside China and India promised to be growth motors at the beginning of this century, have wavered and, only India reached the expected growth rates.

Meanwhile, the European model, which seems to be solid twenty years ago, is in doubt, under the pressure of the refugee crisis, the Brexit and the advancement of anti-European and populist movements in its largest powers. The European Union has to try now if, as one of its founding father, Jean Monnet, said, “it will be forged during the crisis”.

 

 

 

 

Meanwhile, the economic framework faces the end of a cycle. At the end of last year, the OECD assured “the global growth had touched the ceiling” and the International Monetary Fund’s (IMF) forecasts consider the rise of the Gross Domestic Product (GDP) to be in 3.7% this year. The rate is similar to that for previous years, but the engines have changed.

 

The entity, which alerts in its report about the risks of the trade war in global growth, forecasts an advancement of only 2.13% for advanced economies, facing 2.36% expected for 2018 and 2.34% for 2017. And which is the reason? The development in the United States and the Eurozone.

 

The weight will fall, once again, upon the emerging powers, which are forecasted to maintain the rate of 4.7% in 2019, the same registered the previous two years. With all that, one of the expansion drives of these group of countries, China, will continue its downturn, while India will advance until becoming this year the world’s fifth largest power, surpassing the United Kingdom.

 

 

 

 

The five advanced economies that will grow the most during 2019 are Macao, Malta, Cyprus, Slovakia and Ireland, with peaks fluctuating between 4% and 6%. The United States, however, will moderate its ascent until 2.5%, four tenths below the one in 2018, in part due to the tax reform driven by Donald Trump.

 

The Eurozone, on its behalf, will slow down until 1.9%, one tenth below the one in 2018 and, while Germany and France will maintain its growth rates, Italy and Spain will slow down two and five tenths, respectively.

 

As for emerging economies, the best perspectives regarding growth are for Yemen, where it is estimated a rise of 14.7%. The country, deep into a profound humanitarian crisis due to the civil war, will see its economy relatively lifted thanks to the increase in the price of oil-

Libya, Dominican Republic, Ethiopia and Rwanda will complete the top five, with rises that only in the first case will surpass the double digit. India is placed in seventh position, with and a rise of 7.4%, while China falls to 22th position, with a growth of 6.2%, below 6.6% in 2018 and 6.9% in 217.

 

The global commerce, on its part, will slow down as well. In September, the WTO lowered its growing forecasts until 3.7% for 2019, two tenths below 2018’s figure. The organization, which expects a growth of the economy of only 2.9%, underlines in its report that the hardening of monetary policies and crystallization of protectionist threats affected the predictions.

 

“If it is true the growth is still solid, that reduction of the perspectives reflects the increase in tensions generated between important commercial partners,” claimed the Director-General of the WTO, Roberto Azevêdo. “Now more than never, it is essential for the governments to settle their differences and show moderation,” said.

 

 

 

 

A key year

In that context, this fiscal year is going to be key in several aspects. On one hand, in the trade war: Trump and Xi Jinping have given ninety days, from last 1 January, to reach an agreement, and this week the first meeting is going to be held. In the meantime, this battle, even in the truce, is already having an impact in the economic development of both powers: China’s manufacturing PMI closed December below fifty points for the first time ever and Shanghai’s stock market suffered a several corrective during the fiscal year.

 

The United States’ GDP, on its behalf, started to slow down, once the effects of Trump’s tax reform wear off, with an increase of 3.5% on the third quarter, in front of 4.2% on the second.

 

Bearing in mind that setting, the Federal Reserve chairman, Jerome Powell, admitted last week that its plans to continue reducing interest rates could be affected if the economy cools down. In Europe, by contrast, where rates have maintained the same price since the crisis, the period of cheap money could be brought to an end. Mario Draghi, president of the European Central Bank (ECB) has already cut the quantitative easing program and has claimed rates are not going to rise “at least until autumn” of this year.

 

Simultaneously, on the 29 March the Brexit will become effective, and the agreement between London and Brussels is not closed yet, apart from a minimum accord. Theresa May will take this draft to the Parliament in January, but there is little support. Europe faces s well the parliamentary elections this year, something that will entail a litmus test for populist movements in the continent.

 

Tensions in emerging markets like Brazil, after the election of Jair Bolsonaro; Russia or Turkey, alongside with the continues terrorist threat in Europe and the refugee crisis will mark again the agenda during a year in which many are the countries with their future is at stake.

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