Almost five years after the world’s worst financial crisis for three generations, the repercussions are still being felt in the European market, says diamantaires. One of the wealthiest continents in the world with a potential market of around 350 million people, Europe remains stuck in the doldrums.
Saddled with huge debts, some of the European Union’s member states are still a long way from being in the right condition to once again become important jewelry consuming markets. These include Ireland, Spain, Greece and, ironically, given its long history as a jewelry-producing powerhouse, Italy. Issues of sovereign debt tied to austerity measures and huge numbers of unemployed people, particularly in the 18-25 age group, mean those countries could face a generatyion of reduced jewelry buying.
“To be entirely honest, buying jewelry is not on most people’s minds,” said Simon Rainer, Chief Executive of the British Jewellers Association(BJA) at the annual congress of CIBJO, the World Jewellery Confederation which took place in early May in Tel Aviv. “Many people are struggling to make ends meet.
“The market is, at best flat. Unfortunately, this creates a visioous circle since people are not buying jewelry and that is making life untenable for many jewelry manufacturers and retailers. When workers are then fired because companies are not selling enough, they often join the lines of unemployed and they, in turn, are also unable to afford to buy jewelry.
“And another major issue is the competition that jewelry faces from other consumer goods, particularly gadgets such as smartphones and tablets. It is extremely difficult to explain the attraction to young people of jewelry when they can buy a gadget for much less which connects them to a world they love and to their families and friends,” he added.
For Israeli jewelry manufacturers and exporters, the problem of Europe’s slowdown is made even worse by the strength of the country’s shekel against the embattled euro. Although Israeli travelers and importers of goods from Europe enjoy the benefits of the weak euro, it is a different story for Israeli exporters to the 17-member euro zone. Products sold to those countries have become considerably more expensive. That rise in the exchange rate, together with the weak economic recovery in Europe following the global economic crisis, is leading to falling exports and more headaches for Israeli manufacturers.
However, it is more than just the sick euro and weak euro-zone economy that is worrying Israeli exporters. There are fears that the Greek rescue package is untenable, and that Greece will fail to make its debt payments. At some point, some fear, it will default and possible even abandon the euro and return to the drachma in a bid to regain control of its currency and turn around its economy.
“Greece has had to commit to making widespread changes to its tax and fiscal policies, but it still is not really deal with the widespread corruption, bribery, money-laundering and huge black market activities,: said one Israeli diamantaire. “Just take a trip to Greece or to one of the islands and you see the size of the black market. People simply have lost faith in their government. Young people told me that there is no point paying taxes to a government which might tell you, when you get to pension age, that it does not have enough money to pay you the pension that you thought you would have. That creates a situation where people avoid taxes, and it snowballs from there because other people then say that if their neighbors are not paying, then why should they. It is quite a disastrous situation. It cannot be turned around even in a number of years. I believe this is a problem that will take a generation to clear up.
“And Greece is not the only country in this situation, From Ireland to Portugal and Spain and Italy, taxpayers are disillusioned with government. They simply do not believe anymore that the government is interested in them. Huge numbers of people are coming to the conclusion that they have to take care of themselves and this is breaking society down. It is hugely damaging,” he added.
There are other problems affecting the markets. Renowned jewelry designer and maker Roberto Coin told the CIBJO Congress that the size of the jewelry industry in his country has declined by 50 percent in recent years. He complained that cheap imports had a huge advantage over locally produced goods.
“In Italy, we have high costs – taxes and salaries – and we have to play by the rules, of course. But companies abroad simply do not face this situation. They can export their goods to us and offer them at a much lower price. Are their jewelry items safe? Are they in line with European Union directives? I do not think that is the case for many items. But the imports are not opened and examined.
“They simply enter the country and rapidly make their way to the consumer. They are often presented as Italian made. And that creates more problems since a tourist who buys ‘Made in Italy’ jewelry which then deteriorates soon after he gets home says to himself ‘I will not buy Italian jewelry again if that is the quality of the items they are producing,” Coin added.
In the most recent statistics aboutbthe state of the euro zone economy, inflation fell to a three-year low and unemployment hit a record high. The depth of the recession affecting the zone is seen in the way inflation dropped to just 1.2 percent in April, the lowest level since February 2010 and the biggest monthly drop in more than four years, according to the European Union's statistics office Eurostat.
Some Europe-based analysts now say there is a fear of deflation due to consumers seeing prices being reduced continuously in a bid to entice them. In that situation, economic textbooks say that consumers are happy to simply sit and wait for further cuts before buying, creating a downward spiral of prices.
In addition, euro zone unemployment hit a record 12.1 percent of the working population in March. The European central Bank (ECB) expects the euro zone's economy to start recovering in the second half of this year, but recent data has cast doubts on that forecast, especially with the German economy struggling to rebound strongly from its fourth-quarter shrinkage.
Meanwhile, Spain's economy shrank for the seventh straight quarter in the first three months of this year, suggesting its recession will stretch into 2014. And French consumer spending - the driver of its economy - fell in the first quarter having declined for the first time in two decades last year.
Italy's new Prime Minister Enrico Letta has called for a change to the EU's focus on austerity and more pursuit of economic growth and jobs.
Austerity measures create a damaging cycle where governments cut back, companies lay off staff, Europeans buy less and young people have little hope of finding employment. Close to 20 million people are now out of work in the bloc, the highest level since the euro zone's inception in 1999 and also since Eurostat began monitoring the countries in 1995.
Although the euro zone's trade surplus grew in February, the positive balance was due to lower demand for imports rather than export growth. The trade surplus for the 17 countries in the euro zone, unadjusted for seasonal swings, was 10.4 billion euros. The value of goods imported by countries in the euro zone from outside the bloc dropped by 7 percent in February from a year earlier.
The effect on Israeli jewelry manufacturers featuring diamonds and other precious stones in their products has been relatively small, said one jewelry manufacturer. “We tend to have a very good idea of what’s happening in the markets around the world. And since we are mostly small companies who can share information quickly and efficiently, we are able to move quickly and redjust.
“When the price of gold rose, we quickly reduced the amount of gold and size of diamonds or precious stones in order to cut price points. At the moment, there is not too much effect," he said.
As a market for diamond jewelry, Europe receives relatively little attention. Taking into account the enormous size of the European economy, that comes a surprise. The European Community had a gross domestic product of around €12 trillion ($14.6 billion) in 2012, according to the International Monetary Fund, making it the largest economy in the world. At least 15 of the 25 countries with the world’s highest per capita incomes last year are located on the European continent.
Since European jewelry buyers are more reserved than those in North America and Asia, that is considered as one reason that sales on the continent are less per capita that in the United States and Asia. Although Europe has a long history of manufacturing and buying diamond jewelry, its lower overall levels of purchases in recent times are thought to stem directly from the traumatic effects of World War II when the traditional European powers found themselves in a state of enormous disrepair. Their economies were hammered and their infrastructure required huge investments. Rationing was a common feature of life across the continent for almost a decade after the end of the war.
But across the Atlantic, World War II had provided a huge boost to the American economy, which expanded sharply. Although the major European economies had recovered from the war by the mid-1950s, the huge devastation of the Second World War was fresh in the minds of many.
As a result, it was difficult for people to think of buying diamond jewelry when they had barely had enough food to eat during the war year. Even if they did have the money to do so, and many did not, they chose modest jewelry featuring small diamonds. Meanwhile, in the United States, a huge single market which was not suffering the enormous social and economic problems gripping Europe, there was demand for a wide range of diamonds from small to large and with a large range of colors and clarities.
That situation in Europe changed over the years, and those countries that were jewelry or watch manufacturers that used diamonds – particularly Switzerland and Italy – began to absorb larger amounts of diamonds as they built up their export industries to service wealthy new markets, particularly the United States.
The main markets are Switzerland, Italy, Germany, France and the United Kingdom, and Raj estimated they account for approximately $1.5 billion of wholesale diamond sales annually of the global total of around $15 billion.
European customers, generally, require diamonds with better color and clarity. That means whitish stones not yellow shades. The average clarity would be VS. Despite the fall in sales, the European market is still looking for that type of better diamond although they may downsize to a smaller stone. They want to remain with high-quality stones, but are looking for lower price points, say diamantaires.
That compares, for example, with the U.S. and Asian markets. The United States is a vast market so there is a much wider range of demand. They buy all types of colors and clarities and also consume more commercial qualities. As for Asia, it is staying with nicer quality diamonds.