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The head of one of Europe’s largest appliance makers said China’s slowing economic growth was “very worrying” and warned that China’s vast manufacturing industry could dump cheap products elsewhere as the domestic market cools.
Hakan Bulgurlu, chief executive of Istanbul-based Arçelik, told the Financial Times in an interview that Chinese manufacturers’ “huge production capacity” was a major risk for rivals.
“If the Chinese market slows down, that means they need to tap into that capacity and put the product into other markets,” he said. His company owns brands such as Beko and is acquiring a majority stake in Whirlpool’s European home appliances business.
His warning highlighted the ripple effects of China’s economic deterioration on the world. Hopes of recovery from the end of last year’s Covid-19 lockdown have been disappointing, with consumers refraining from making big purchases. According to data from the National Bureau of Statistics, home appliance sales in July 2022 fell by 5.5% compared with the same month.
“China is indeed the engine, but right now the engine is failing,” Burguru said. “I don’t think it will recover anytime soon,” he added.
One benefit, he said, is that slowing factory output and real estate development could lower commodity prices, thereby lowering Arçelik’s costs.
He also expressed concern about demand for home appliances in Europe, one of Arçelik’s main markets, accounting for about 40% of its sales of 7.7 billion euros last year. He said many consumers were “underperforming” and that high inflation had eroded their purchasing power.
He is also concerned that energy prices could rise this winter, which would put further pressure on consumers. European gas prices are down about 90% from their peak last summer, when Russia halted supplies through pipelines and EU storage facilities were about 93% full, but analysts said a cold winter could still cause prices to rise .
“I don’t think Russia is going to be able to turn on the taps and the demand looks like it’s going to outstrip the available supply. That’s what worries me. And I don’t see enough politicians talking about it, which worries me even more,” Burguru said.
Burguru said Arçelik, which is controlled by Turkey’s Koç Holding industrial group, is preparing for a “long-term recession” in Europe, due in large part to energy inflation.
He said this could bring some benefits to Arçelik, whose brands target cost-conscious consumers. In Germany, for example, “consumers are still buying, [but] They are abandoning “premium brands”.
Turkey, which accounted for about 30% of total revenue last year, has been performing better than Europe because local consumers are more likely to view white goods as a store of value amid inflation approaching 60%, Burgulu said. means.
The group’s first-half financial results highlighted divergent performances in Europe and Turkey. In euro terms, revenue in Europe was up about 6% from the same period in 2022, while revenue in Turkey was up 39%, according to Financial Times calculations.
Overall, the group’s operating profit before financial charges, which include the huge cost of hedging lira fluctuations, rose 25% to 5.8 billion lira ($216 million) in the first six months of 2023, but fell in euro terms 6%.