The short-term decline was driven by changes in the two largest markets, the USA and China, with retail sales dipping as a result of decreasing consumer confidence and geopolitical uncertainty, the ninth annual report on the global diamond industry prepared by the Antwerp World Diamond Centre (AWDC) and Bain & Company found.
Consultancy Bain & Company partner and lead author Olya Linde said despite several short-term challenges positive signs could be seen for the diamond market in the long run.
"First, though, the industry has to weather some uncertainty in 2019 and 2020 due to continued geopolitical instability, strong signs of an impending recession and limited marketing support, especially for nonbranded and lower-end jewellery," Linde said.
"On the other hand, the branded luxury diamond jewellery segment, which accounts for about 15% of the total diamond jewellery market, is expected to perform well, growing at high single digits - in line with the growth of personal luxury goods."
According to the report, US diamond sales were expected to reverse course this year from the 3% growth recorded in 2018. The negative trend was driven by consumer confidence falling to its lowest point since 2016 on the back of uncertainties surrounding the labour market, trade tension and a possible recession.
A continuous decline in Chinese travelers to the US further lowered luxury purchases overall, while an extra 15% tariff on Chinese jewellery went into effect in September that could impact sales during the crucial holiday season, the report found.
Last year, the Chinese market, including Hong Kong, grew 4%, with the trend also set to reverse in 2019. Linde expects the Chinese market to contract 5% in US-dollar terms.
The shift is attributed to yuan depreciation, declining consumer confidence stemming from trade tension between the US and China and significantly lower sales in Hong Kong amid continued protests.
"Learning from past diamond industry recessions, we foresee a resolution in the next two years," said Linde. "Assuming the industry deploys appropriate marketing support, and barring any unforeseen economic or political shocks, it will rebalance.
"The most effective campaigns will target the mass market, which branded advertisers do not traditionally cover."
Last year, global rough production fell 3% to 147 million carats, following a record-breaking production year in 2017. A 26Mct production increase in 2017 was the largest single-year volume increase since 1986, and it created a surplus that affected the entire value chain.
This will drive an expected 10-15% drop in polished diamond sales this year.
"While sentiment in the rough diamond market remains cautious, having been impacted by the oversupply of polished diamonds and the challenging situation in India's financial sector, the major producers have made efforts to stabilise the diamond pipeline, reducing supply and lowering prices. All signs now point toward the gradual reestablishment of a balance in the market in the coming year," said AWDC CEO Ari Epstein.
According to the assessment, the rapid growth of online sales channels, increased marketing spending to support the natural diamond industry, developments in laboratory-grown diamonds capabilities and an increased focus on the environment and sustainability would set the market tone for 2020.