Few bankruptcies and relatively good export figures

A decline in bankruptcies suggests government support is more than enough. The Netherlands shows remarkably good export figures, while world trade is recovering with China as the driving force. Inflation is falling, but the ECB is waiting. How about all that exactly?

The number of bankruptcies in the Netherlands unexpectedly fell below 200 in August. Between mid-2017 and the start of the corona pandemic, the number of bankruptcies per month was between 200 and 300. Due to the deep recession, it is only logical that the number will rise sharply. But so far that hasn't happened. In fact, the number of bankruptcies actually fell, and not just in August. The decline started from May.

It is obvious to conclude that the support measures taken by the government in response to the corona crisis are too much of a good thing. There seems to be an 'undermortality' of companies. It is soon concluded that we are maintaining 'zombie companies' and that is apparently not a good thing. I'd be happy with it for now.

The intention was to prevent unnecessary damage to the economy, which could become permanent. It was impossible for governments and central banks to determine exactly how decisive their policies had to be. In my opinion it is better to do too much than too little. And perhaps our government has done that. If the support measures are reversed, we will see what remains. There's still going to be a lot going on.

Dutch exports are holding up well
Export figures were also published this week. After the outbreak of the pandemic, world trade shrank sharply and we have also seen this in our trade figures. But if you compare the figures for the Netherlands with those for Germany and France, it is striking how much better our exports have held up.

In July, the Dutch export value was only 0,6% lower than a year earlier. In France and Germany it was between -10% and -15%. It is not entirely clear to me why the Dutch export performance compares so positively with that of these two large countries. Maybe our companies are doing something really good. The relatively good export performance may have some influence on the better-than-expected bankruptcy figures.

Economic recovery loses momentum
The global economic recovery continues. I do, however, read somewhat concerned comments that the recovery is starting to lose momentum. I personally don't worry too much about that. It even seems logical to me. First we shut down businesses and locked up people. This, of course, led to a dramatic decline in activity. Subsequently, part of the activity was restarted.

Naturally, you will get decent growth figures from the bottom up. However, because not all restrictions on public life have been lifted in one fell swoop, it was impossible for business to immediately return to its old level. After the first easing of restrictions, it will be gradual. By definition, this means that the economic recovery will also be more gradual than initially. What matters is that we keep moving forward. I don't see any signs that it isn't.

Container index points to recovery in world trade
World trade can be seen as the artery of the global economy. Now it is not easy to accurately measure total world trade and certainly not to produce reasonably reliable and above all up-to-date figures. That is why economists like to look at figures that are easily and quickly available and that nevertheless provide a nice indication.

An example is the 'RWI/ISL Container Throughput Index'. This measures the amount of containers processed in 91 ports in the world. It seems to cover 60% of the global container transport by sea. The index for the world as a whole has now bounced back to close to pre-coronavirus levels.

There is, however, an important geographical distinction. In China, this index is at a record level, quite large in fact. In the rest of the world it will take a while before we get back to the old level. But that's all exactly what you can expect. China is leading the way and in the end we must and will take advantage of that.

Falling inflation with us
The corona crisis has led to a discussion about inflation prospects in economists' country (and beyond, actually, everyone meddles with it…). Is inflation going to rise or fall? Or maybe neither? A sharp rise in inflation seems unlikely for the time being. And the August figures from CBS confirm that picture for the time being. The price level in August decreased by 0,5% compared to July. Compared to a year earlier, inflation fell to 0,7%.

Inflation appears to be rising slightly in the US. The so-called 'headline' index, the total inflation figure, rose by 0,4% in August compared to July and by 1,3% compared to a year earlier. Core inflation, excluding food and energy, was also 0,4% month-on-month and 1,7% year-on-year, up from 1,6% a month earlier. This is not very shocking. Also, keep in mind that the Federal Reserve (Fed) is looking at a different inflation measure, but those numbers aren't out yet for August.

ECB waits, but gives unclear signals
The ECB has made no changes to monetary policy this week. Changes were also not expected. Still, the press conference was important. The euro has appreciated against the dollar in recent months. The question is how that affects our economy and whether the ECB finds it acceptable.

The more expensive euro worsens the competitive position and that is undesirable at the moment. The more expensive euro also dampens inflation, which is also undesirable at the moment. When central bankers are assertive about the exchange rate, they quickly find themselves on thin ice. Firstly, the effects are difficult to estimate precisely, but above all the question is what influence a central bank can really have on the exchange rate.

Not in the comfort zone
Perhaps that's why Lagarde was a bit laconic about it. I got the feeling that as a lawyer she is not quite in her comfort zone with these kinds of subjects. The ECB is keeping a close eye on things, but has no exchange rate target. Well, that had to be added. That they wouldn't keep a close eye on things.

The ECB also slightly raised its growth forecast for this year. That seems reasonable to me. The ECB also raised its inflation forecast for next year, while it had actually been expected to fall. This raises quite a few questions. Not in the least about what exactly we can expect from the policy. To be continued… 

Hans de Jong

Han de Jong is a former chief economist at ABN Amro and now a resident economist at BNR Nieuwsradio, among others. His comments can also be found on Crystalcleareconomics.nl

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