Antwerp Facets Special Report

After a roller-coaster year in 2009, all of us, in every country and industry are wondering what the new year will bring. Although we are all feeling much more confident than we were 12 months ago, some people, nonetheless, have a nagging feeling that troubles could lay ahead in the first year of the new decade.

We all know that a recovery is underway, and that has come as a great relief. However, there are some economists who are warning that this year might not be plain-sailing. Although the danger of a "W' shape, or double-dip recession remains a possibility, its likelihood has declined.

Will stock markets continue to rise? Are they out of line with the reality on Main Street? In the diamond industry, can rough prices continue to climb, and is a new bubble being formed? If polished prices are not rising in line with those in the rough market because consumer demand is not yet strong enough, are we going to be left with a huge glut of polished gems with the natural corollary being bankruptcies?

As has been the case since the global financial meltdown struck in the fourth quarter of 2008, there are far more questions than answers, and that reflects the huge uncertainty of the times we are living through. In much the same way that the economic crisis has led to a widespread examination of the Great Crash of 1929 and the huge depression that struck the United States in the 1930s, it is reasonable to assume that our children, grandchildren and even great-grandchildren will look back on 2008-2010 and the way that governments dealt with the crisis and study the way the world changed.

What we cannot know now, but can only guess at, are the long-term changes that will create a new economic order. Is diamond jewellery consumption at the start of a long-term decline, or this just a short-term blip. De Beers' Managing Director Gareth Penny confidently stated several months ago that diamond sales always fall during a recession and then bounce back. While that may be true, the problem is that this is not a recession of the type that many of us have ever seen.

It has been far deeper and more dangerous than anything that most of the world's population has ever seen. It has struck at all levels of society, and has left many people chastened and disillusioned. It has created levels of unemployment not seen for several decades. And, even more seriously, those unemployed are finding it even more difficult to return to work than we have ever seen before.

With 10 percent unemployment in the United States, and that figure not expected to fall significantly in 2010, the global economy is likely to be at a standstill this year. It is true that business and consumer confidence is rising, albeit gradually. However, in the absence of strong and sustained demand from the United States, demand for diamond jewellery, apart from the bridal sector which has remained stable, will not rise.

Although there is strong evidence that the emerging markets are growing strongly and they will create demand for goods and services, it is clear that they cannot replace the United States in importance to the international markets. In the diamond industry, that has become clear. China and India have growing middle class segments and there is rising demand for diamond jewellery. But that demand is nowhere near large enough to compensate for the fall in demand from the United States. In addition, as De Beers has shown with its in-depth research, those markets are especially price conscious. In other words, margins for diamond companies are going to be under strong pressure.

So, as we start the new year, let us be optimistic about what it will bring. Antwerp, as has been said many times since the crisis started in late 2008, has been through many crises and downturns in more than 500 years as the world's leading diamond centre. In addition, the past year has shown that it has been able to withstand the shocking events brought on by the world's near financial collapse.

Our Antwerp firms have been able to withstand the shocks, and shown their ability to change and adapt. Indeed, that may be the most important lesson to be learned from the crisis. In a highly inter-dependent world where instant communication has created a global village, we are all affected by developments across the globe. Let us be hopeful, but remain cautious.