From Birkins to Balance Sheets: How M2 Shapes Luxury

Tancredi C di Montezemolo | September 2025

It is a bright morning in Shanghai. A young executive, Prada’s Car Shoe loafers clicking against marble, crosses the lobby of the IFC Mall. She is on her way to Bulgari, where a high jewellery parure has just landed. The saleswoman greets her with a reverence once reserved for imperial courtiers. But behind the sparkle of diamonds and champagne flutes lies an invisible number: M2, China’s broad money supply, which has grown by just 1.5% in recent months.[3] The purchase she is about to make is less about adornment than about liquidity — an act of confidence that the tap has not yet run dry.

Meanwhile, in Mid-town New York, it's bonus season. A hedge fund manager ducks into the Rolex boutique on Madison Avenue during his lunch break. He has tracked the market: U.S. M2 stands at US$22 trillion, up 4.8% year-on-year,[1][2] but adjusted for inflation, the real growth is modest. His mind knows the numbers; his wrist longs for a platinum Daytona. He swipes his Amex Centurion anyway. Luxury, like markets, runs on sentiment before it runs on logic.

And in Milan, an elegant nonna shepherds her granddaughter through Montenapoleone, past Gucci, Ferragamo, Versace. The old woman remembers lire, devaluations, the introduction of the euro. She knows better than most that money ebbs and flows. She doesn’t need to read that the Eurozone’s M2 has grown a paltry 0.2% in the last quarter[3] — she can feel it in the hesitation of customers outside Moncler’s windows. Luxury houses become monetary barometers long before the European Central Bank releases its reports.

Further south, in Doha, a Qatari sheikh strolls through the Place Vendôme mall, an air-conditioned Versailles on the Gulf. He enters Van Cleef & Arpels with the unhurried gait of someone who knows oil revenues crossed US$200 billion in 2022 for his country alone.[9] Here, liquidity is not conjured by central banks but by hydrocarbons. For the Gulf, M2 is often less revealing than the Brent crude chart — when oil prices soar, boutiques from Doha to Riyadh bloom with clients; when they sag, even the rarefied air of Al-Thani palaces feels tighter. Yet, unlike Europe or America, luxury in the Gulf often sails on a separate tide: fiscal surpluses rather than household credit, sovereign wealth funds rather than savings accounts.

These vignettes share a common thread: luxury dances to the rhythm of money supply. When M2 swells, boutiques hum with life. Post-2008, when central banks unleashed torrents of liquidity, equities roared, real estate soared, and Louis Vuitton became a global synonym for recovery. In 2020–21, as stimulus cheques ballooned household balances, Gucci belts and Hermès Birkins sold faster than flour or milk. When the liquidity tide recedes, the aspirational classes retreat — not the billionaires, who continue to collect Ferrari SP2s or Patek minute repeaters with monastic calm, but the upwardly mobile whose confidence is built not on fortunes but on the perception of abundance.

Bain & Company and Altagamma now forecast a 2–5% contraction in global personal luxury goods in 2025, with a downside of –9%.[4] This is the arithmetic of liquidity written in sales figures. The €1,200 handbag hesitates; the €200,000 couture gown does not. Luxury, economists say, is highly income elastic[5] — which is a polite way of saying that it soars when money is plentiful and swoons when it is scarce.

And yet, I suspect a turn is near. Politics, not economics, will engineer it. U.S. federal interest payments are on track to surpass US$1 trillion annually by 2026,[6] while defence spending edges toward 3.5% of GDP.[7] In Europe, military budgets are climbing at the fastest pace since the Cold War, with NATO allies rushing to meet the 2% of GDP threshold.[8] In such an environment, persistently high interest rates are politically unsustainable. Populist governments cannot ask voters to bear austerity while simultaneously funding rearmament.

My view is that central banks will begin to relent, not out of elegance but of necessity. The Fed funds rate, now 4.75%, could drift toward the 3.5–3.75% range by late 2026. The nomination of a new Fed chair next year may well crystallise the shift. If this easing begins to be priced into markets in Q1 2026, liquidity will loosen and boutiques from Paris to Shanghai to Doha will once again fill with eager clients, no longer hesitating at the door.

Friedman was right that inflation is a monetary phenomenon, but he overlooked the poetry: desire, too, is a monetary phenomenon. Abundant liquidity transforms longing into action. Scarcity leaves beauty shimmering in the window, unbought. Every Birkin, every Daytona, every couture gown is thus not only a symbol of taste, but also a shadow of M2 — the invisible tide that makes the world’s most frivolous purchases its most telling economic indicators.

Yours,

T.

Notes & Sources

[1] Federal Reserve Board of Governors – H.6 Release: Money Stock Measureshttps://www.federalreserve.gov/releases/h6/current/default.htm

[2] YCharts – US M2 Money Supply (NSA) (July 2025 ≈ US$22.03T, +4.8% YoY)https://ycharts.com/indicators/us_m2_money_supply_nsa

[3] StreetStats – Liquidity Tracker: Money Supply (U.S., Eurozone, China)https://streetstats.finance/liquidity/money

[4] Consultancy.eu – Global luxury sector braces for downturn as demand weakenshttps://www.consultancy.eu/news/12068/global-luxury-sector-braces-for-downturn-as-demand-weakens

[5] KPMG – How strong is the pricing power of luxury goods?https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2022/12/how-strong-is-the-pricing-power-of-luxury-goods.pdf

[6] Congressional Budget Office – The Budget and Economic Outlookhttps://www.cbo.gov/publication/59851

[7] SIPRI – World Military Expenditure Databasehttps://www.sipri.org/databases/milex

[8] NATO – Defence Expenditure of NATO Countries (2024)https://www.nato.int/cps/en/natohq/news_225134.htm

[9] Reuters – Qatar’s 2022 budget surplus boosted by record LNG and oil revenueshttps://www.reuters.com/world/middle-east/qatar-reports-2022-budget-surplus-record-oil-gas-revenues-2023-03-16