Asia continues to lead the way, what are the EU and US doing?

The optimism of entrepreneurs in Asia continues to grow. The blow in the European service sector is much less than in the spring. And Thanksgiving takes a toll in the US. 

In the first few days of the month, we are always inundated with business confidence figures for the previous month. These figures provide a good picture of the economic development in the world. So you get a good idea of ​​whether economic activity is getting stronger or weaker. The international cohesion is usually great, because the connections between different economies are numerous and more or less the same driving factors are usually in force.

At the moment, however, it is different. Although the Coronavirus is also on the rise in various major economies in Asia, the numbers of infections etc. cannot be compared with those in Europe or the US. This difference determines the divergence of the economy.

Confidence indices continue to rise in Asiaë
As mentioned earlier, the Chinese economy is growing strongly. Producer confidence indices in November confirm this picture. In manufacturing, the Caixin index rose to 53,6 from 54,9 in October, its highest level in 10 years. The index for the services sector rose from 56,8 to 57,8.

In other countries in the region, business confidence in the manufacturing industry also increased further in November. In Japan, however, the index remained below 50, a sign that real growth has not yet taken place. But there was an improvement: 49,0, versus 48,7 in October. In Taiwan and Korea - economies that are of course smaller than the Japanese, but therefore also more open and more influenced by the economic situation in China - confidence rose to levels that we have not seen for a long time.

Confidence varies in Europe
In Europe the picture is less rosy. In itself, the industry is still doing reasonably well, but the services sector is being hit by lockdown measures that have been taken everywhere to stop the virus.

In our own country, the confidence of entrepreneurs in the industry did increase in November. In fact, the index compiled by the NEVI even saw a remarkable jump: 54,4 in November, from 50,4 in October. It seems that the strength of the recovery in China is also extending to us via Germany (a major supplier to China).

After all, many Dutch industrial companies are once again suppliers to German industry. Before we get euphoric, it is worth noting that the comparable series - as compiled by CBS for much longer - did improve in November, but not to the same extent as that of the NEVI. It is also striking that the NEVI series reached its highest level since the beginning of 2019, while the CBS series has not yet returned to pre-pandemic levels. I don't know how to explain the difference exactly.

German factory orders on the rise
The latest factory order figures show that the German industry is doing better. In October, they rose by 2,9% compared to September, while the September figures were also revised upwards. Year-on-year orders were up 1,3%, -1,8% in September. Apart from an increase early in the year, the year-on-year increase was the first since July 2018. This shows how badly German industry has been hit by the cyclical slowdown since the beginning of 2018 and especially from the problems in the automotive sector. Hopefully the October figure is the first in a series of positive signals from the industry.

As mentioned, things are going a lot less in the services sector in Europe. Earlier this year we also saw that the services sector suffered a much bigger blow due to the lockdown measures. That is understandable, because it is precisely activities in that sector that are affected by the measures. Fortunately, the blow that is being dealt now seems a lot less severe than that in the spring.

Thanksgiving Takes Toll In The US
In the US, the number of infections is rising sharply. The Thanksgiving festivities, in particular, seem to have given the spread of the virus a new boost. Now that central management is more or less lacking, it is up to local authorities to take measures. This will undoubtedly mean that activity in the short term, especially in the services sector, will be hit again. However, the overall economic recovery seems solid enough to me to avoid another recession.

The recovery in the US labor market is clearly weakening further. On balance, 245.000 jobs were added in November. A month earlier, there were 610.000 and almost 5 million in June, after nearly 22 million jobs were lost in March and April combined. The November figure is slightly skewed as nearly 100.000 temporary jobs were lost in connection with this year's census. The unemployment rate fell slightly, from 6,9% in October to 6,7%. This was mainly due to the decline in the labor force. The unemployment rate is now 3,2 percentage points higher than in February, but 8,0 percentage points lower than in April.

On balance, the US economy continues to recover reasonably well. In the short term, the rising number of corona infections poses a danger. It would be good for Congress to agree on a new package of measures to support the economy, now that parts of the March CARES legislation have passed or are about to expire.

According to the latest reports, Democrats are ready to renegotiate the Republican plan for a $500 billion package of measures. The Democrats' plan is worth $900 billion. It may be possible to reach a compromise quickly, although we have thought that before.

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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