Swinging up and down between vaccine and corona waves

The reports about the forthcoming vaccine against the coronavirus give cause for optimism, but the vaccine is not yet available. In addition, parts of the world are now struggling with the second or third corona wave. The latter has repercussions on the economy, but it will all work out. This does require patience, though.

News that Pfizer, or rather the German BioNTech has developed an effective virus against Covid-19, gives hope and gives rise to optimism. The stock markets, which had already welcomed Joe Biden's election victory in the US (albeit perhaps partly because the radical wing of the Democrats will probably have little leeway, because the chance that the Democrats will get a majority in the Senate), switched some more teeth.

At the same time, the corona news in the US and Europe did not get much better. Admittedly, in our country the number of people who test positive per day has halved since the end of October. The numbers remain significant and the ICU occupancy in hospitals is not yet clearly declining. A relaxation of restrictions on public life therefore seems to be away for a while.

In the US there is an increase in infections and that number per 1 million inhabitants is now higher than in the Netherlands. The number of deaths is higher in our country.

We have known for a long time that the corona crisis is having an unprecedented impact on the economy. Statistics Netherlands (CBS) published GDP figures for the third quarter today (Friday). After 8,5% contraction in the second quarter (quarter-on-quarter), 7,7% growth followed in the third quarter. In comparison with the same quarter last year, the minus sign remains: -2,5%, against -9,4% and -0,2% in the second and first quarters, respectively.

The chart below shows that the 'Economic Sentiment' index compiled by the European Commission for our country had already predicted this. Private consumption remained firmly negative at -4,8% yoy, from -12,1% in the second quarter. Consumers spent less on catering, recreation and culture, and transport and communication. However, they spent more on goods, especially food, home furnishings and electrical appliances than a year earlier. The retail sector achieved record growth in the third quarter.

The Netherlands has been hit less hard than neighboring countries
Statistics Netherlands reports in a separate report that, on balance, the Dutch economy has been hit less hard by the corona crisis than other countries this year. In the third quarter, our GDP in volume was 3% lower than at the end of last year. In France this was 4,1%, in Germany 4,2%, in Sweden 5,0%, in Belgium 5,7% and in the UK 9,7%. Statistics Netherlands does not report what the differences are and whether we can continue this better performance.

The third quarter is already behind us and GDP figures give an impression for the average for the quarter. We know that the coronavirus has regained ground during September and that the virus has continued to gain momentum in October. Restrictions on public life have also been tightened.

Economic data will deteriorate in the short term
It is therefore no surprise that more recent economic indicators paint a less positive picture. Manufacturing production, for example, fell by 1% in September compared to August after a three-month increase. Compared to a year earlier, production was 6,3% lower than a year earlier after -3,9% in August and -11,5% in May.

In the following chart, I have plotted the year-on-year change in industrial production against the number of corona deaths (daily average per month, inverted scale). Production figures are up to and including September, but deaths are up to a few days ago. The chart suggests that economic data, such as manufacturing, will deteriorate in the near term before hopefully improving.

Export sector is a bright spot
A bright spot is formed by the export sector. As discussed earlier, world trade has been picking up for several months, driven by the economic recovery in Asia. The volume of Dutch goods exports was 0,7% higher in September than a year earlier, the first positive figure since February. The chemistry and the agricultural sector led the way.

At first glance, the number of bankruptcies is also moving in the right direction. In October, there was again a decline. Over the first 10 months of the year, Statistics Netherlands registered more than 26% fewer bankruptcies (excluding sole proprietorships). Unfortunately, this development is seriously misrepresented. The fall in the number of bankruptcies is undoubtedly the calm before the storm. Seat belts fastened.

Germany more pessimistic
The economic situation in our eastern neighbors is comparable to ours. The coronavirus has also started to advance there, although the numbers of infections and deaths, etc. are significantly lower in relative terms than with us. That doesn't stop analysts surveyed monthly by research firm ZEW from becoming more pessimistic. The estimate of the current situation among these analysts has been falling for 2 months now.

In November, this sub-index fell to 39,0, from 56,1 in October and 77,4 in September. The expectations component hadn't risen as much as the current estimate anyway, and that component weakened slightly in November: -64,3, from -59,5 in October. With all these figures, the assessment of the current situation is still above the historical average, but the expectations are clearly more gloomy than the historical average.

I tend to relate the latter mainly to the prospects for the coming months. Assuming that public life normalizes in the course of next year, you can still expect a clearer and sustainable recovery.

Just like in the Netherlands, German exports are also improving. The pace at which this is happening is slowing down and in the year-on-year comparison, Dutch exporters clearly outperform their German counterparts.

Not many important economic figures have been published this week in the world's largest economies. The recovery of the US labor market is continuing, although the pace of that recovery is slowing down further. Confidence among American SME entrepreneurs remains as high as ever. US inflation, which, in contrast to European inflation, had risen slightly in recent months, fell back somewhat in October: 1,2% against 1,3% in September. Core inflation also fell slightly: 1,6% against 1,8%.

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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