The art market’s traditional summer break is becoming more biting than usual as the broader economy teeters toward a recession. Most of the pessimism emanates from the United States, which is the ever-growing engine of the global art market, so a slowdown in activity there would reverberate around the world.
It’s still debatable whether a recession is definitely where we’re headed, but the International Monetary Fund (IMF) said yesterday it looked increasingly likely “amid evidence that the world’s three largest economies are all at a standstill and inflation is higher than previously expected,” the Guardian reports.
An even broader debate revolves around whether or not a recession would have an impact on the art market. At Art Basel last month, the trade was seemingly isolated by news from outside the halls of collapsing cryptocurrencies and falling stock markets, even though people weren’t talking about anything else. Yet dealers have publicly insisted that their customers still kept the financial gains made last year and that their spending habits remained unchanged. There is also a well-established belief that the safe investment profile of art is not correlated with day-to-day variables in financial markets.
I do not agree. Speculative contemporary art, and the NFTs that have developed alongside it, are highly volatile and can hardly be considered safe havens. The more established fine art may not be as sensitive to a drop in Bitcoin or tech stocks, but that’s largely due to its inherent illiquidity. It takes a lot longer to drain a painting than most other assets, so art is probably not the best place to start stemming your losses.
Meanwhile, the art market is one of sentiment more than fundamentals. If potential buyers aren’t feeling optimistic, it’s likely to lead to the excitement that normally fuels sales and prices. It may take a little longer in our world for the bad news to spread, but it will. The same process works the other way around: increasing wealth through stock market and cryptocurrency gains has helped fuel the art market in recent years. No market can claim to be bullish only.
It’s the economy, silly
There are also very real economic problems. Interest rates, which have been low enough to make it easy to borrow to spend, are rising for the first time in a long time, while inflation is making everything more expensive. The amount of liquidity in the system, a process that began after the 2007-08 recession and was exacerbated by the measures taken to weather the initial Covid-19 crises, is shrinking. The art market, a generic term designating luxury objects of limited economic use, will not be spared.
Where art stands out is that its market is based more on supply than on demand. The handful of billionaires and millionaires who can dictate a flagship auction are likely still able to spend at phone number price points. The difficulty will be to value the works of sellers who prefer to wait for the return of more sparkling times. The dysfunctional art market operates with a dose of self-interest, so there will be enough insider sellers to ensure a healthy appearance. But in my opinion, this is probably the best result of an upcoming fallow period.