By Chris Wilcox, Poimena Analysis | Source: International Monetary Fund, Consensus Forecasts, US Department of Commerce, European Commission, Japan Ministry of Economy, Trade and Industry, China Commerce Department
The economic outlook in many of the major wool consuming countries is better than it has been for some time, and consumer confidence is strong. Clothing retail sales have been rather restrained recently, although improving in 2015 to date. Will the better predicted economic conditions bring further improvement in sales in the coming Autumn/Winter in the Northern Hemisphere?
In the past two years, retail sales of clothing in the major wool consuming countries around the world have been subdued, although there have been a few brighter exceptions. Table 1 shows the trends in clothing retail sales growth in the eight largest wool consuming countries. These countries account for around two-thirds of annual consumption of wool in clothing.
Clothing retail sales in China have slowed from the high growth rates seen prior to 2012. Of the advanced countries, the UK recorded strong growth in both 2013 and 2014, while other countries recorded weak or even negative growth. There are generally signs of better sales in the majority of countries so far in 2015.
The good news is that the outlook for economic growth in the major wool consuming countries around the world is relatively positive, in spite of the significant volatility in share markets and commodity prices in recent weeks. Figure 1 shows the trends in economic growth rates in the major regions. The outlook is for better growth in all of the advanced economies.
An important point to note from this chart is that economic growth is expected to be highest in China, albeit at rates lower than the double-digit growth rates seen prior to 2010. This slowdown in growth rate is to be expected.
China’s economy is in transition from an invest-and-export base to one more reliant on the domestic consumer. This will mean a lower, but more sustainable, growth rate than the break-neck pace China experienced in the previous 20 years as it opened up to the global economy.
The steady improvement in economic conditions in the major advanced countries should encourage increased retail sales in the coming Autumn/Winter, which is a crucial period for the sales of wool clothing. This will be helped by consumer confidence levels in the US and in Europe, which are at or near eight-year highs.
The transition of China’s economy will cause some volatility as the adjustment progresses. Even so, the predicted economic growth rates for China in 2015 and 2016 should provide a solid base for clothing retail sales this coming Autumn/Winter. In the longer term, the change to an economy more focused on the domestic consumer will be positive for wool.
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