Don't get too gloomy about the economy

The corona statistics in Europe are bad and the new restrictions are giving the economy another blow. Elsewhere in the world the situation is better, or rather less bad. It's easy to get gloomy, but there are also important positive developments. A kind of global lockdown, such as in March/April is not obvious now

Most people pay more attention to the national or local news than to what is happening elsewhere. This is currently leading to Europeans, especially the Dutch, perhaps forming a very gloomy picture of the economy. The corona statistics in these parts look very bad. Within Europe, the Dutch figures are even worse than those in most other countries.

The new restrictions in the Netherlands, but also elsewhere, will deal a new blow to the economy. It is difficult to say in advance how hard that blow will be and partly depends on how long the restrictions are maintained. Many economic forecasters have recently made their growth estimates for this year less negative, but that is about to stop and maybe reverse. The uncertainties remain unprecedented and I would not pay too much attention to adjustments to growth estimates.

Less bad elsewhere
It is easy to lose sight of the fact that the corona figures are less bad elsewhere. And above all that there are also quite a few positive developments in the global economy. In March-April, the whole world went into lockdown, now it concerns far fewer countries at the same time.

Before the recent increase in the number of corona infections in Europe, recovery from the downturn in the second quarter was clearly underway. Take Italy. That country experienced a significant contraction in the second quarter. Industry order figures for August were released this week. Those were excellent. Compared to the previous month, a plus of 15,1% was recorded and the year-on-year comparison jumped from -7,2% in July to +6,1%, as can be seen in this chart.

Anyway, that is about August, when the number of infections was low everywhere in Europe. More recent figures came out this week from Germany where the October ZEW index was published. This index is compiled on the basis of a survey of some 350 professionals in the financial sector and gives an idea of ​​how the current economic situation is estimated and how the future is viewed.

The influence of rising corona infections was probably expressed in the drop in 'expectations', although that series remains at a reasonable level. The current situation was still an improvement, but there is still a long way to go before this series returns to a more historically normal level.

Aviation remains very difficult. This week Schiphol published figures on how many flights, passengers, cargo and mail passed through the airport in September. Those numbers didn't count. In April, May and June, Schiphol saw an average decline of around 95% in passengers compared to the same months in 2019. This recovered to -72,8% in August, but the improvement did not continue in September: -79,4, XNUMX%.

The new restrictions in the Netherlands, but also in other countries, may give these figures a further blow in the coming period. The picture is the same at other airports in Europe. Heathrow, Frankfurt and Paris Charles de Gaulle all recorded a drop of just over 80% in passenger numbers in September from a year earlier.

China gives significant boost to world trade
I'm repeating myself, but the Chinese economic recovery remains impressive. This is important, because China has been the main growth engine of the global economy for years. The Chinese recovery is also being felt elsewhere through international trade. In September, imports from China were 13,2% higher than a year earlier, in August a minus of 2,1% was recorded.

Other countries are therefore seeing their exports increase. Indonesia's exports, for example, had contracted by 8,2% in August compared to August 2019 and improved to -0,5%. Chinese car sales are also on the rise with year-on-year pluses of 11,6% and 12,8% in August and September respectively.

US recovery continues, despite some setback in the labor market
The number of new jobless claims in the US increased somewhat in the most recent week and still remains very high: 898.000 compared to 845.000 the week before. The total number of benefits fell further: 10,0 million compared to 11,2 million a week earlier. For the time being, I see the increase in the number of new applications as 'noise'.

Several other indicators this week were quite reasonable. The Philly Fed index, which measures business confidence in the district of the Philadelphia Fed, rose from 15,0 in September to 32,2 in October, its highest level since February. The comparable New York Empire State index actually fell slightly: 10,5 versus 17,0 in September.

However, the October value was still higher than the 2019 average. SMBs are the backbone of the US economy. Confidence among these entrepreneurs increased further in October. The National Federation of Independent Business (NFIB) monthly index came in at 104,0 in October from 100,2 in September.

Online sales on the rise
US retail sales rose 1,9% in September from August, when they already registered a 0,6% increase from July. Not surprisingly, the continued advance of online sales. These are now 23,8% higher than a year ago and now make up about 15% of all retail sales. We already knew that many people have used the lockdown period to do odd jobs in and around their homes. Sales of construction and garden equipment in September were more than 19% above the level a year ago.

Manufacturing production actually fell slightly in September: -0.6% month-on-month. In the manufacturing industry, excluding mining and utility production, the loss was 0,3%. Still, the Federal Reserve reported that total manufacturing output rose in the third quarter at a pace of nearly 40% year-on-year. For the manufacturing industry, the Fed even reported an annualized growth rate of more than 50%.

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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