Economy growing slightly faster than in previous quarters

The Dutch economy grew by 0,4% in the third quarter compared to the second. Exports and government consumption, in particular, made positive contributions. Consumer spending also increased, but investments declined.

The labor market is relaxing. For the first time in four years, the number of vacancies is lower than the number of unemployed. While the number of jobs has not increased in recent months, the participation rate in our country is higher than in comparable countries. It should be noted that few countries have such a high level of part-time employment. In fact, we are the world leaders in this area.

Confidence among Dutch industrialists continued to rise in October, according to Statistics Netherlands (CBS). The index improved from -1,6 in September to -0,8, the best reading since April 2023. The Nevi will follow on Monday with the purchasing managers' index for October.

Our inflation fell slightly in October: from 3,3% in September to 3,1%. This is welcome, but remains too high. In its "quick estimate," Statistics Netherlands (CBS) publishes data for only four components besides the total figure. I'm not exactly thrilled with these details. Price increases for industrial goods and energy decreased significantly, but for "daily groceries" (food, etc.) and services, the opposite trend occurred. Services account for about half of the inflation basket. The 4,5% increase was the highest in six months. According to Peter Hein van Mulligen of Statistics Netherlands, airline tickets, in particular, became more expensive. However, such details are not yet publicly available. If the acceleration in inflation in services is primarily due to airline tickets, it is likely temporary. But we must realize that services are generally labor-intensive and that wage cost trends are a significant factor behind services inflation.

The German economy is performing less well than ours. Our eastern neighbors' economies stagnated in the third quarter. In fact, German GDP hasn't grown net since 2017. The problems surrounding Nexperia also threaten to bring Germany's crucial but vulnerable automotive sector to a standstill in the short term.

Despite these reports, German entrepreneurs became slightly more positive about the future in October. The expectations component of the Ifo index rose to its highest level since the beginning of 2022. Hope springs eternal, but the assessment of the current situation was less positive.

The Fed has lowered its official interest rates for the second time in a row. This was expected. Financial market participants expect a third rate cut in December. In his remarks, Powell said that a third consecutive rate cut is not a foregone conclusion. He added: far from itHe repeated those last words a few more times during the press conference. It seems to me that the chance of a rate cut in December is quite small, although Powell also said that there are widely divergent views within the policy committee. This was also evident from the fact that two members voted against the 25 basis point rate cut. Stephen Miran, who was parachuted onto the Fed board in September, wanted a 50 basis point rate cut, while Jeffrey Schmid, president of the Kansas Fed, wanted to leave the rate unchanged. It's understandable that opinions differ. There are arguments for both a rate cut and a pause in rate cuts.

The US economy is growing at a moderate pace, and inflation is above target. Powell's statement was noteworthy, stating that the Fed's view is that the effects of the tariffs on inflation will be limited and temporary. He also stated that, excluding the tariffs, inflation is very close to the Fed's target. This leaves the door open for a rate cut in December.

Powell attributes the slowdown in job growth primarily to the reduced labor supply. This decline is related to declining labor participation, but mainly to the sharp decline in the number of immigrants. By lowering interest rates, the Fed has no influence on the labor supply. Therefore, the weakness of the labor market may not be a compelling reason to lower interest rates under current circumstances.

However, there are also some real weaknesses. According to the Case-Shiller benchmark, house prices fell for the second consecutive month in August. If this decline continues in the coming months, it could prompt the Fed to lower interest rates further.

The government shutdown is, of course, playing tricks on central bankers. Because of the shutdown, official statistics on the US economy are scarce. While there are plenty of other sources, visibility on the economy has undoubtedly diminished. Powell compared it to driving in fog. You adjust your speed accordingly. Therefore, the shutdown is more likely to lead to a postponement of interest rate cuts than to an acceleration of them.

The ECB is quite pleased with itself. Our central bank left its official interest rates unchanged. ECB President Lagarde noted that economic growth in the eurozone is very satisfactory (apart from Germany) and seems to be improving somewhat. Inflation is close to target and certainly within the ECB's comfort zone. According to Lagarde, we are in a good place.

Closing

The Dutch economy grew slightly faster in Q3 than in the previous two quarters. The labor market is stagnating and relaxing as a result, but industrial confidence is rising. Inflation fell slightly in October, but the underlying momentum is hardly reassuring.

The German economy disappoints again with zero growth in the third quarter.

The US central bank has lowered interest rates again, but is certainly not willing to commit to the next meeting. The economy is performing reasonably well, but not spectacularly. The ECB is very satisfied with itself and the economy. This is unlikely to change much in the near future, so it's reasonable to assume that ECB interest rates will remain unchanged for the foreseeable future.

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