What happens to the art market during a recession?
With major stock market tumbles and growing economic uncertainty, the shockwaves of Covid-19 look set to ravage the world’s economy for months if not years to come. At these times many investors put their trust in alternative investments like art, fine wine and gold since they are perceived to hold their value better than global equities. So, how does art typically perform during a recession and what might we expect to see over the next few months?
Looking at historic data from the so-called Great Recession of 2007-2009, we can immediately see that demand for fine art remained remarkably consistent especially in 2007 and 2008. In 2007 global public auction sales topped US$32.9 billion, while in 2008 the figures hit US$28 billion. To put this in context in 2005 auction sales only came in at US$17.2 billion and in 2006 US$26.1 billion.
The figures clearly show that auction turnover was higher during the first couple of years of the recession than during the previous two years. The global appetite for buying fine art was undiminished even during some of the darkest days of recession. When we look at the data for 2009, when the recession did finally begin to have some impact on art buying, total sales only fell to US$18.3 billion. Despite the backdrop of economic uncertainty this figure for 2009 is still higher than the global auction turnover for 2005!
Interestingly, even as the recession cut deep into the world’s biggest economies, key artworks were still fetching eye watering prices on the auction circuit. In February 2009 Yves Saint Laurent’s magnificent art collection set a new record for a single-owner collection, totalling $483.8million at Christie’s three-day extravaganza in the Grand Palais in Paris. To put it in context, this remarkable result came just 5 months after the collapse of Lehman Brothers.
Another key benefit of the art market is that it is extremely fast to recover following major economic shocks. By 2010 global auction sales were just slightly below the figures for 2008 at US$27.6 billion, while by 2011 the numbers nearly matched those for 2007 with US$32.4 billion sold that year.
This rapid recovery is all the more remarkable when we compare with stock market recovery across that same period. The S&P 500 didn’t reach pre-recession levels until 2013, two years later than the art market, about the same length of time taken by the FTSE 100 which had recovered by May 2013.
So, how can we explain the impressive resilience of the art market and how can we expect it to perform this time round? Without having access to a crystal ball, it’s impossible to say for certain how the markets will react to the ongoing impact of Covid-19. If we take past performance as a guide, there are clear indications that the art market will recover quickly and any downturn will be short-lived. During a recession wealthy art owners tend to hold on to their collections. This temporary reduction usually ensures prices remain stable, making art a safe alternative investment option for those looking to diversify their portfolio during these uncertain times.