More bankruptcies but still 'undermortality'

The number of bankruptcies in our country continues to rise. In September, 11% more companies went bankrupt than in August, but the changes month on month are volatile. Over the first nine months of the year, the number of bankruptcies was approximately 40% higher than a year earlier. These figures should be put into perspective. During the pandemic, the number of bankruptcies fell sharply. Apparently, the support kept companies going that would have gone under without the pandemic and without support.

Since mid-2022, the number of bankruptcies has been rising again and for over a year now, that number has exceeded the average level of 2018/19 every month. If you assume that the number of bankruptcies would have remained the same in recent years as in 2018/19 without the pandemic, then there is still 'undermortality'. I currently estimate that at around 3.000 companies. It will take some time before we have 'caught up' with that number.

The flip side of all this is that the decline in bankruptcies during the pandemic has led to a spectacular tightening of the labor market. Now that the number of bankruptcies is normalizing, the labor market is also relaxing. For viable companies that are desperate for staff, that is good news.

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The volume of our goods exports was 2,1% lower in August than a year earlier. In particular, fewer machines, petroleum products and means of transport were exported. In this we recognise our dependence on Germany, where industry is under pressure and where car construction and chemicals are particularly important sectors.

German industry did manage to increase production by 2,9% month-on-month in August. That is less impressive than it sounds. In July, there was a decline of 2,9%. The volume of new orders fell by 5,8% in August after a rise of 3,9% month-on-month in July.

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CPB presents four scenarios for 2050
Since 1955, the CPB has published reflections on the long term every few years. This week, 'Choosing for later: four scenarios for 2050' was published. In this fascinating study, the CPB outlines four future scenarios, each based on a different vision of society. The CPB's calculations make it clear that each scenario has advantages as well as disadvantages. In the 'Market' scenario, the focus is mainly on increasing the material standard of living. This does lead to more environmental damage than the other scenarios and to more income inequality. In the scenario that is given the title 'Autonomous', the aim is to achieve as much independence from foreign countries as possible. This turns out, not unexpectedly, to be expensive in terms of economic growth and therefore material prosperity. Relatively modest social provisions are also characteristic of this scenario. In the 'Sustainable' scenario, we get a more sustainable world as intended, but many things become considerably more expensive, which limits prosperity and the government interferes much more than in the other scenarios with all kinds of details of our personal lives. The 'Together' scenario aims for solidarity. Income inequality is less in this scenario than in the others, but that is at the expense of total prosperity. High taxes characterize this scenario.

The calculations in the study are surrounded by considerable uncertainties. So for what it's worth, I'll say this about it. This is an economic study and I'm an economist myself. It may be a professional deformation, but I'm quite struck by the differences in economic growth. In 'Market', the GDP per capita, a decent measure of average prosperity, increases by 2050% between now and 47. The 'Autonomous' scenario lags far behind with an increase of only 6%. 'Together' and 'Sustainable' also lag considerably behind with 10% and 23% respectively. The CPB does not calculate how great the additional environmental damage is in 'Market'. So we don't know whether the additional prosperity in this scenario is sufficient to repair that environmental damage.

What I do know is that many people believe that we no longer need growth. However, when prosperity is lost, the fuses quickly blow, as we saw when prosperity was eroded by an explosion of inflation a few years ago.

What I also find interesting is that the figures show that sustainability costs prosperity. That is no surprise to me, but it may be to many others. The euphoria that we will just realize 'green growth' as ​​if that will surpass growth without sustainability is firmly destroyed by the study. Of course I am in favor of a sustainable world, but it is good that people realize that sustainability policy has costs, while the sustainability gain is not always evident.

Fed shaken up and down by volatile data
In September, the Fed cut its official interest rates by 50 basis points, a remarkably large step for a first rate cut. The minutes of that meeting were published this week. They show that there was a heated discussion about 25 or 50 basis points. Because the latest inflation figures before the meeting were particularly encouraging and the labor market figures actually indicated a considerable cooling, it was decided to cut rates by 50 basis points. Subsequently, the subsequently published job growth in September was much stronger than expected and inflation in September was also higher than expected. That is now raising doubts about future rate cuts. According to the expectations of the Fed's policy committee, the rate would be cut by another 50 basis points before Christmas. There are two more meetings this year.

You can get hung up on all these numbers and they are also volatile in the short term. One disappointing or positive number does not make a trend. I maintain my opinion that the Fed will continue to lower interest rates significantly in the coming quarters. An important consideration is that interest rates are currently well above the level that we could probably call neutral.

The same goes for the ECB rate. Our central bank has done exactly what I thought it would do, namely cut rates by 25 basis points every three months. Furthermore, I expected the ECB to accelerate the pace or increase the steps at some point. That now seems imminent. Many market participants assume that the ECB will cut rates for the third time this year next Thursday.

Incidentally, it is sometimes difficult to get a clear picture of the state of the economy from the jumble of figures. Sometimes, figures are revised considerably. For example, I have always assumed that the American consumer would be under increasing pressure. The figures showed that consumers save a remarkably small part of their income. That is generally not sustainable and then leads to a weakening of the growth of consumption. However, statisticians have recently revised those figures. It now appears that family savings are not at all as low as previously reported.

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The US presidential election and the elections for the entire House of Representatives and a third of the Senate are approaching. 'Never a dull moment' when Donald Trump is one of the candidates. For entrepreneurs, these are uncertain times. What direction will policy take under the next president? According to the monthly survey of the National Federation of Independent Business (NFIB, an advocacy organization for small and medium-sized businesses), uncertainty among their members has never been higher than it is now.

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Closing
The number of bankruptcies among companies in our country is increasing. This is inevitable because during the pandemic many companies have remained on their feet that would have collapsed under normal circumstances. Many of these companies will still go bankrupt in the near future. Very annoying and painful for those involved, but it also contributes to some relaxation of the labor market.

German industry is still under considerable pressure and we feel it too. A turnaround does not seem imminent.

The CPB has published an interesting long-term exploration. Although the results are not shocking, the value of the study is that it calculates what policy choices yield and what they cost.

Recent figures cast some doubt on the policy of the US central bank. The bank started the process of easing vigorously in September with a rate cut of 50 basis points. Since that meeting, figures have indicated a robust labor market and disappointing inflation. Nevertheless, I think that the Fed will ultimately cut rates quite substantially. Just like the ECB, which will make another interest rate decision next Thursday, which will probably be a cut.

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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