The recent earthquake and tsunami in Japan and upheavals in the Middle East cast a shadow over the optimistic mood at the start of the Baselworld trade show for the watches and jewellery sector Wednesday.

Despite a positive start to the year, the Swiss watch industry remained cautious about the outlook for the sector, given global events.

But Sylvie Ritter, managing director of Baselworld, said no Japanese exhibitors had cancelled at the show.

"All of the exhibitors who booked space are here, there have been no cancellations. It is more important to continue to do business as before, to try to return to normal life.

"Japan is an important country, and there will be some changes in patterns of consumption, but only a short term basis, we hope," she said.

Japan is traditionally the third biggest market for Swiss watches behind the U.S. and Hong Kong, and had shown signs of recovery from its recent slump, with Swiss watch imports up 11.5% in the first two months of this year.

"We have experienced in the months gone by an alternation of major, unforeseeable upheavals and shocks," said Jacques Duchene, president of the exhibitors committee, after passing on his condolences to those affected.

Several countries in Africa and the Middle East are now going through radical changes, bringing uncertainty to the whole world, he said.

Although the events appeared to be heading in the right direction, "our uncertain geo-political situation still makes it imperative for us to be cautious in our analyses," he added.

But the watch industry nonetheless sounded a fairly upbeat note at the start of the 39th annual event, which is the world's largest watch show with almost 2,000 exhibitors including the brands of Swatch Group (UHR.VX) and LVMH (MC.FR) and privately-held Rolex.

Swiss watch exports in the first two months of 2011 are 18.1% ahead of 2010 at CHF2.55 billion, while February was a record month for the sector.

Francois Thiebaud, chairman of the Swiss committee and President of Tissot, said: "We have had an even better start than the record year of 2008.

"We have to be cautious, not rush into jubilation, hoping that things will develop in our favor," Thiebaud said, adding there had been good growth in Hong Kong, China, and U.S. so far this year, while European markets were recovering.

The luxury sector had recovered from the downturn in 2009, with further growth forecast for 2011.

"The way out of the tunnel materialised faster and more energetically than the market forecast for us, but let us avoid the pitfall of being too certain of victory," Duchene told a press conference in Basel.

Rene Kamm, chief executive of organizers MCH Group said, "The economic upturn was successfully rung in last year and the slump in the luxury goods sector is now thing of the past."

Sylvie Ritter, managing director of Baselworld, said, "At the opening ceremony of last year's show we spoke about a year in which the industry has been revitalised and there are fewer clouds in sight.

"The return to full health has been confirmed throughout the whole of the year just gone by, so let us assume that 2011 is going to turn out just as positive and that the entire industry will thus be able to continue to progress."

-By John Revill, Dow Jones Newswires; +41 43 443 8042 ; john.revill@dowjones.com
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