Richemont reported impressive quarterly results on Thursday, driven by festive season sales, even as weak demand in China weighed on performance. The Swiss luxury goods giant’s robust earnings sent ripples through the European luxury sector, lifting share prices of major rivals.

Richemont’s stock surged over 16% to reach a record high of ₣161.8 (€172.45) on the Zurich Stock Exchange, marking its largest intraday gain since October 2008. The company has been a standout performer, with its share price up 21% in 2024, contrasting sharply with declines seen in other major luxury players such as LVMH and Kering last year.

Strong Fiscal Third-Quarter Performance

For the fiscal third quarter of 2025, Richemont reported sales revenue of €6.2 billion, a 10% increase year-on-year, exceeding analyst expectations. While sales in mainland China, Hong Kong, and Macau collectively fell by 18%, resulting in a 7% decline in the Asia-Pacific region, robust growth in Europe, the Americas, Japan, and the Middle East & Africa offset the weakness.

European revenue surged by 19%, bolstered by increased domestic demand and higher tourist spending from North America and the Middle East. The Group’s Jewellery Maisons—Buccellati, Cartier, Van Cleef & Arpels, and Vhernier—achieved 14% growth, driven by iconic jewellery and watch collections during the festive season.

However, Specialist Watchmakers experienced an 8% drop in revenue year-on-year, reflecting the challenges in the Asia-Pacific market. Despite this, strong growth in the Americas and the Middle East & Africa mitigated the impact, reducing the year-to-date segmental decline to 16%.

Year-to-Date Highlights

For the nine months ending December 31, 2024, Richemont recorded a 4% increase in sales at constant currency, with net cash rising to €7.9 billion from €6.8 billion in 2023. The company ended the fiscal year 2024 with record full-year sales of €20.6 billion, though quarterly sales dipped by 1% due to the Asia-Pacific slowdown.

CEO Nicolas Bos, who took over in June 2024, is credited with steering the group toward growth in alternative markets, mitigating the effects of weakened Chinese demand, a factor emphasized by former chairman Johann Rupert.

Luxury Sector Optimism

Richemont’s results buoyed the Euro Stoxx 600 Luxury Ten Index (STXLUXP), which rose nearly 7% on Thursday. Stocks of rivals LVMH, Hermès, Christian Dior, and Kering gained 9%, 4.9%, 8.6%, and 6%, respectively.

Analysts are divided on whether the downturn in Chinese luxury spending is cyclical or structural. With China accounting for a significant portion of the Asia-Pacific market, brands heavily reliant on Chinese consumers may face continued challenges in 2025. However, optimism surrounding Richemont’s results has injected renewed confidence into the sector ahead of upcoming earnings reports.

Germany’s year-on-year inflation rate for December was confirmed at 2.6%, according to the Federal Statistical Office, marking the third consecutive month of growth and the highest rate since January 2024. The increase was driven primarily by rising services and food prices, leaving inflation above the European Central Bank’s (ECB) 2% target.

Key Drivers of Inflation

Services prices surged at an annual rate of 4.1% in December, slightly higher than November’s 4%. Food prices also saw an uptick, climbing to 2% from 1.8% in the previous month. Meanwhile, energy prices, which had been declining, fell at a slower pace in December, recording a decrease of 1.6%, compared to a 3.7% drop in November.

Month-on-month inflation also rose, reaching 0.5% in December, up from a decline of 0.2% in November and exceeding preliminary estimates of 0.4%.

For the entire year of 2024, the average inflation rate stood at 2.2%, a significant drop from the 5.9% recorded in 2023. Core inflation, which excludes volatile items such as food and energy, fell to 3% in 2024 from 5.1% the previous year.

Economic Contraction Continues

Germany’s economy shrank by 0.2% in 2024, following a 0.3% contraction in 2023, according to recently released gross domestic product (GDP) data. The contraction reflects ongoing challenges in key sectors.

Manufacturing output declined by 3% in 2024, weighed down by sluggish performance in the car manufacturing and machinery sectors, two pillars of the German economy. The construction sector also experienced a sharp decline, shrinking 3.8% due to rising interest rates and soaring construction costs.

On the other hand, household consumption rose marginally by 0.3% for the year, supported by increased spending on transport and health.

Challenges for Growth

Both structural and cyclical pressures have impeded Germany’s economic growth. Surging competition in key export markets has created challenges for the country’s export-driven economy. Additionally, higher energy costs and geopolitical uncertainties, including trade tensions and conflicts, have exacerbated economic vulnerabilities.

Outlook and Policy Implications

The persistent inflationary pressures and economic stagnation present a complex challenge for policymakers. While inflation remains above the ECB’s target, the broader economic slowdown may necessitate continued monetary and fiscal measures to support growth.

As Germany grapples with structural weaknesses and external risks, economic recovery will likely depend on addressing these challenges while maintaining consumer confidence and industrial competitiveness.

The European Central Bank (ECB) reduced its key interest rate by 25 basis points to 3% during its December meeting, aiming to bolster the struggling eurozone economy. However, meeting minutes released on January 16 revealed sharp disagreements among policymakers over the extent of intervention needed to address the economic slowdown.

Debate Over Rate Cut Size

The rate cut was largely driven by slowing growth and easing inflation, with updated projections indicating a sluggish economic recovery for the eurozone. While the Governing Council unanimously supported the 25-basis-point reduction, there was a split on whether a more significant move would have been appropriate.

Advocates for a 50-basis-point cut argued it would offer a stronger buffer against downside risks. “A larger rate cut would provide insurance against weaker growth projections,” some members noted, pointing to repeated downgrades in economic forecasts.

However, others cautioned that a more aggressive cut could send unintended signals to financial markets. “A 50-basis-point reduction might suggest the ECB is overly pessimistic about the economic outlook,” the minutes highlighted, adding that such a move could create uncertainty among investors.

Rising Political and Global Risks

The ECB’s deliberations also considered geopolitical and trade-related uncertainties. Members expressed concerns about potential new U.S. tariffs on Chinese goods, which could disrupt global trade and indirectly impact European inflation and growth.

Closer to home, political instability within the eurozone added to the complexity of the ECB’s policy decisions. France’s challenges in forming a stable government and Germany’s upcoming snap elections in February were flagged as potential risks to economic stability.

“Uncertainty about U.S. trade policies has been compounded by greater policy uncertainty in Europe,” the minutes noted, emphasizing the importance of stable European institutions during this turbulent period.

Future Outlook

Despite the rate cut, the ECB refrained from outlining a clear trajectory for future monetary policy. Officials emphasized a “data-dependent and meeting-by-meeting approach,” stating that future decisions would hinge on incoming economic data.

A significant challenge for the ECB is addressing structural economic weaknesses that monetary policy alone cannot resolve. Policymakers underscored the need for governments to adopt measures that address long-term growth issues.

While markets anticipate additional rate cuts in 2024, the timing and magnitude remain uncertain. The ECB faces the delicate task of balancing the need for economic support with avoiding actions that could undermine market confidence.

With inflation cooling but geopolitical risks on the rise, the ECB’s next moves will likely reflect a careful navigation of both immediate and long-term challenges.