With a US recession (A recession is a significant decline in economic activity spread across the economy, lasting more than a few months) seeming more and more likely, people are beginning to question how such an event would affect the current art market. My first reaction would be to remind people that the US economy has been unstable for quite a while, partly as a result of the sub prime mortgage crisis yet the art market has continued to defy the odds and flourish. There are some people that are saying that it takes 12 months for the art market to show any reaction to outside markets which would make that reaction due about now considering that the sub-prime mortgage crisis really took hold in early 2007. Even if the US economy was to have a major effect on the art market (which I don’t think it will) and the art market were to experience a downturn right now, it would most likely last for a very short time because the housing market is predicted to make a recovery by 2009 at the latest and the US economy is tipped to make a strong comeback as well. There is also the fact that 2008 is an election year for the US and election years typically have a positive effect on an economy.
A US recession would reduce the number of American buyers in the art market and would most likely cause the price being paid for artworks, especially in the US, to drop. However, because of the massive contingent of international art buyers it wouldn’t be long before the American buyers were replaced. The lack of American buyers would probably cause a very short term reduction in the price being paid for works being sold in the US which would entice the international buyers to the American market thus causing the American market to recover.
The other factor to consider is that people are turning to art as a secure investment and as a hedge against inflation due to the very low correlation between the art market and more mainstream investment markets such as the stock market. All in all the art market is in a very good position at the moment and is showing all the signs of being able to weather the US economic storm.
**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.