Art-рынок in times of crisis. Part 1: Epidemic
ARTinvestment.RU   17 марта 2020

AI understands the indicators of the art market during epidemics, wars and economic crises

With the beginning of 2020 the art market is going through serious turmoil. The entry into force of the fifth anti-money laundering Directive of the EU and the beginning of Pexit deprived London auctions for quality work and part of the European collectors, the epidemic of the coronavirus translated Art Basel Hong Kong online and canceled a dozen other art fairs and auctions, and the subsequent fall in stock market indices and the cost of the major brands of oil impact on personal capital the world's largest collectors. Investors who failed to sell objects of art "at the peak", today decide whether to hurry with the sale@the semicolon and those who have free money, I think whether to buy "on the decline". Thoughts both boil down to one question: what will happen with the market next?

Factors that are both negatively and significantly affect the art market can be divided into three groups: political instability (and its extreme – war), economic crisis and epidemic. Analyzing sales volumes and price dynamics of art in the time of social-экономических shocks, you can make a specific forecast, as art-рынок will behave today, but with one important caveat: in recent history, the art market never faced the epidemic at the level of a pandemic.

the Epidemic was a historical satellites of the development of art and the emergence of art-рынка. Suffice it to recall that the first prototype of the art-ярмарки in Venice in the XIV century ceased to exist with the arrival in Europe of bubonic plague. In the subsequent three centuries, between the outbreaks of "black death", did the masters of the Italian Renaissance, was carried away by the plague, Hans Holbein and Titian, born Hieronymus Bosch and Pieter Bruegel. In particular, in Venice, Tintoretto wrote his greatest work in the building intended for the plague quarantine. The retreat of plague from Northern Europe contributed to the development of the market for secular art in the Netherlands of the XVII century. In XVIII–XIX centuries the main epidemic was already caused by typhoid fever, cholera and tuberculosis. Undergoing tuberculosis women often took wives artists-прерафаэлиты, painful beauty romanticised Toulouse-Лотрек (from tuberculosis, the artist subsequently died).

In the twentieth century, with the development of modern medicine, mass epidemic, it seemed, retreated. In 2016 as a result of the epidemic of zika virus in Florida in question was the organization of Art Basel Miami Beach, but the fair was held in due time and showed a good result of traffic and sales. A year later, Art Basel is once again faced with natural disasters, this time the fair was in jeopardy of-за the devastating effects of hurricane Irma. As a result, artists from Miami affected, the MCH Group (the company-владелец of the Art Basel brand) has created a special Fund, giving local artists for $500. In 2020 from-за coronavirus once again hit Art Basel, the first major players in the market canceling is scheduled for March 19-21 fair in Hong Kong and moving sales online.

Since March announced a postponement or cancellation and other fairs: Beijing Jingart, Milan's miart and Art Paris, Art Berlin and Art Dubai. Fair TEFAF in Maastricht (Netherlands) who dared to hold an eventin a country with 20 confirmed cases of infection, was closed four days before the end, March 11, 2020, after detection of a coronavirus from one of the participating gallery owners. While immediately after the opening of the TEFAF managed inform a decrease of 27% in the number of VIP-гостей on the opening day of the fair the traditional day of making most of the major transactions. March 14 the closure of offices in several countries and the migration of trading to a later date, said auction house Christie's: at the moment this applies to 14 auction in new-Йорке and Paris, which was to be held until the end of April. Finally, many international museums (primarily Italian), announced the creation of interactive versions of current exhibitions and permanent exhibitions for visitors who are unable to enter the country because of the pandemic.

At first glance, the situation with the pandemic could play art-рынку plus: to increase the number of available art, translated into a digital format (like , it is known since 2011, the Museum of a virtual analogue provokes the visitor to come and see the collection in person) and transferred or canceled fairs and auctions can create the effect of "delayed demand", prompting collectors with renewed energy to shop after depressurization of the market. That the art market is a necessary if not a pause, then restart, hinted figures report Art Basel & UBS 2019 and 2020: in particular, the increasing number appeared in the sale of items (proposals) to a percentage inferior to the price dynamics of sales and turnover of the global market as a whole (the demand). However, the economy is a factor pent-up demand only works if the buyer remains free capital, and the current pandemic is causing a serious economic crisis.

the Economic risks arising during epidemics studied earlier. The Chinese stock market MSCI fell by 8.6% following the outbreak of SARS (SARS) in April 2003, but recovered and grew by more than 30% compared to pre-crisis level over the next three months. The index of shares on the Hong Kong stock exchange during the same period decreased by 20%, but as quickly played the position. The swine flu epidemic in 2009 caused a drop of 4% of the MSCI Mexico index, which is then increased by more than 25%. However, these epidemics were local. Economists healthcare USA Victoria Feng, Dean Jamison and Lawrence summers (last ex-министр of the Treasury) in 2018 evaluated the expected annual loss from the epidemic of pandemic (i.e., worldwide epidemics) of influenza in the $500 billion (0.6% of world GDP), to include this amount as lost income and internal costs countries on health care.

Today, after two months from the beginning of the real pandemic, according to to analytical centre Oxford Economics, global GDP losses from the spread of coronavirus in 2020 may reach $1.1 trillion, more than double the anticipated losses. In this case, by March 2020 from-за virus for a long time not working 11 million people who do not produce and do not consume goods and services in normal mode. As is known, the economic losses arising during epidemics are also associated with fear and panic people who commit illogical acts – sale and purchase.

Back to art-рынку. According to the report: Art Basel & UBS, the art-ярмаркахgalleries and dealers in 2019 carried 45% of all their sales. The costs of participation in fairs amounted to $4.6 billion (23%) of the total cost sellers ($19.9 billion). One only packaging and logistics of artwork is 11% of the costs in the amount of slightly less than $2.2 billion When the fair is canceled or postponed, it does not mean that galleries do not bear the costs. They have already suffered, the pre-paid pavilions and logistics. Today fair do not return the money, they postpone the event indefinitely preserving (at best) conditions for the galleries. But whether collectors are ready to include the new dates in your schedule of international flights? Moreover, this schedule will be primarily subject to the elimination of the consequences of the pandemic – in other words, social and business-вопросам. It's the question number one.

the average gallery visit four fairs a year, and the conditions of most of the major fairs require prepayment for at least six months. Accordingly, by early 2020 the average gallery has already paid two of the four trade fairs: one of them was cancelled or postponed, the other is in limbo (for example, Art Basel in Basel at the end of June). The offices of fairs operated year-round – 11 of the 12 months employees work on attracting collectors, in periods of turbulence – hard. Not being able to get revenue from tickets or sponsorship contracts, the fair is supported by our own staff and office due to the prepaid galleries of money in anticipation of better times. When they finally come, will they be able to fulfill obligations to the galleries? It is a question number two.

the Auction house, at first glance, are today in the most advantageous position – they have three sales channels: public, private, and online-торги. However, the transferred, second have serious competition with large caliber dealers Larry Gagosian and David Zwirner, and the Internet-пространство promises to try to replace physical Art Basel fair in Hong Kong. Throw in the need to keep the staff and pay the rent (especially for large houses with international branches) – extremely non-winning situation. Online-аукционы also not be saved from the pandemic – they are obliged to accept and inspect the work of bidding personally (talking about those who care about reputation), so quarantine for them equivalent to the actual termination of activity. Add here possible problems with the logistics of art: the international cargo transportation generally work without restrictions, but the transport companies expect increasing time of customs clearance. Who wins at this stage is art-юристы specializing in penalties in connection with fors-мажорными circumstances in the discharge of which in most contracts is defined epidemic.

to sum up: unfortunately, the effect of "pent-up demand" in this case with art-рынком doesn't work on the way out of the epidemic of the coronavirus we will have to wait for an economic recession (plus the effects of Breccia and the fifth anti-money laundering Directive of the EU). In past periods of crisis, the art market has always responded to the General economic downturn delayed, thereby smoothing out swings in figures. In 2020, a period of "smoothing"while held in quarantine.

In the second part we analyze the reaction of the art market to other negative events that have happened in history of economic crises and wars – and compare that with the current situation. Despite its uniqueness, in the history you can always find the answer.

Denis Belkevich, AI