Battle between the virus and vaccination

The battle between the coronavirus and vaccinations typifies the economic outlook, the IMF indicates in the update of the World Economic Outlook. Figures about the vaccination process thus become important in the forecasts. For the time being, we are not very happy about it in our country.

We certainly do not want to compare ourselves with the process - undoubtedly organized with military discipline - in Israel, where the government has also decided to share personal data with the manufacturer. But why we lag so far behind the British is a bit of a thing. We were promised that although we started vaccinating later than other countries, we quickly caught up. We hold our breath.

Percentage of population vaccinated (dates up to and including 28 January)

Source: Coronavirus (COVID-19) Vaccinations - Statistics and Research - Our World in Data

Economic toll in the Eurozone
It is now clear that the increase in infections, hospitalizations, etc., as well as the gradual tightening of lockdown measures in Europe in the fourth quarter of last year, are starting to take an economic toll. It must be said that for the time being that toll is much less than in the spring of 2020.

In Germany, the Ifo index, which measures business confidence, weakened in January. All parts fell. In our own country, business confidence in manufacturing improved slightly in January, mainly due to the electrical and mechanical engineering industry. That is encouraging, because in many countries we see that companies are active in sharpening their revenue models and are investing for that purpose. Especially in digitization. Business confidence figures are consistent with this.

In Germany, consumer confidence also suffered a blow in the last month. According to GfK's press release, the willingness to buy in particular has fallen sharply to 0,0 in January, from 36,6 in December 2020 and 55,5 in January 2020. As the strict lockdown in Germany is extended, a clear improvement is probably not immediately in sight. it's coming.

In our own country, the strict lockdown from mid-December in particular has left its mark. Retail turnover was 3,1% lower in December than a year earlier. That was striking because retail, including online, had actually thrived during the pandemic. Consumers have shifted their spending from services to things. But it seems that the strict lockdown in December caused considerable damage to the retail sector.

Retail turnover

Growth and contraction in fourth quarter
According to preliminary figures, the German economy narrowly escaped contraction in the fourth quarter of last year. GDP grew 0,1% compared to the previous quarter. However, it is very likely that the economy of our eastern neighbors will once again write red figures in the first quarter of the current year. France was unable to escape contraction. The stricter lockdown measures in that country were undoubtedly responsible for this. French GDP shrank by 1,3% in the fourth quarter.

The US economy fared better. GDP grew 2020% in the fourth quarter in 1,0 from the previous quarter (4,0% annualized, as the Americans report). I have reported with some enthusiasm before about the development of business investment or at least parts of it. Investments in equipment increased almost 25% (annualized) in the fourth quarter, according to the national accounts.

The strong growth is confirmed by figures on orders and shipments of capital goods. The next picture shows the shipment of capital goods (excluding defense and aircraft). There is some catching up to demand, which may have flattered recent numbers a bit, but a 6,6% year-on-year increase in December isn't bad.

German inflation jumps
According to preliminary figures, consumer prices in Germany rose sharply in January. On the HICP measure, the monthly increase was 1,4%. This brought the year-on-year increase to 1,6%. This is less shocking than it seems. Our eastern neighbors had temporarily lowered VAT in the middle of last year. The 19% rate was reduced to 16% and the 7% rate to 5%.

The purpose of this measure was to boost spending. Rates went up again in January. The rates on CO2 emissions also rose. Now that Germany is also in a strict lockdown and the willingness to buy has fallen according to the consumer confidence measure, the VAT increase this year will undoubtedly put pressure on consumption. Before the VAT cut took effect in July 2020, HICP inflation was 0,8%. We jumped over that in one go.

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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