Look at the world positively and don't be too stingy

As expected, the IMF is pleased with the sharp decline in global inflation and especially with the fact that it has not required a nasty recession. aroundThat was different in the late seventies and early eighties.

Just before I entered the labor market, central banks pushed the global economy into a deep recession that proved necessary to curb the high inflation of the time. Things turned out well for me. Despite the recession, I found suitable employment fairly easily. In fact, the recession caused house prices to fall sharply and I was able to buy a nice and spacious house at the lowest point of the market. I have benefited from that to this day: I have lived in spacious houses all my life, lucky bastard…That is different for our youth today.

Of course, the IMF also expressed concerns. And rightly so. The advancing protectionism leads to fragmentation of the global economy. The international division of labor is therefore reduced, which in turn is detrimental to prosperity in the world. If Kamala Harris wins the American elections, things will not improve. If Trump wins, things will probably get even worse.

The government finances that are on an unsustainable path in many countries are also a source of concern, as is the lack of growth dynamism in Europe. For the latter, the IMF recommends further integration of the economies in the EU. This is consistent with the recommendations from the report by Enrico Letta earlier this year on completing the internal market. The more recent report by Mario Draghi also contains a series of recommendations to increase growth dynamism in Europe. Our own Minister of Finance, Eelco Heinen, wants to commit himself to completing the capital market union. The idea behind this is that the financial markets in Europe are fragmented, making it much more difficult for promising, innovative companies in Europe to obtain financing than their American colleagues. Draghi also notes this problem.

The creation of the capital market union would certainly help, although I do not expect miracles from it. Nevertheless, I find Heinen's initiative very interesting. I think it is a good tactical move. Draghi advocates issuing common EU debt in the form of Eurobonds. Heinen is strongly opposed to this. But if you are always against things, you do not make yourself popular. Voting against all the time is not very inspiring. It is better to come up with positive initiatives yourself.

Miraculously
German industrialists have become somewhat less pessimistic in October. The purchasing managers index (PMI) in industry improved slightly: from 40,6 in September to 42,6. Of course, that is still not a level to become euphoric about. It still points to a strong contraction in the sector. The downward pressure on prices continues. In fact, it is intensifying. That raises the question of whether Europe is heading for a period of uncomfortably low inflation again. And if so, whether the ECB will then bring the interest rate back to 0%. Fortunately, that is not yet the case.

German purchasing managers also became more positive in the services sector: 51,4 in October after 50,6 in September. In the eurozone as a whole, business confidence in industry and services together improved slightly, probably mainly driven by Germany. At 49,7 (was 49,6 in September), the composite PMI in October remains slightly below the 'boom-bust' dividing line of 50.

Consumer remains dejected
Consumer confidence in our country fell slightly in October: from -21 in September to -22. That is still well below the long-term average of around -10. According to the CPB, household purchasing power will increase by around 2,5% this year. You would expect more confidence from consumers; at least I do. It is a bit of a guess as to the cause of the disappointing feelings of consumers. Geopolitical and national political uncertainties may play a role. It is also conceivable that the inflation of recent years is still reverberating. I hope that the improvement in purchasing power will still lead to somewhat more confidence among consumers in the foreseeable future.

Closing
The IMF is pleased that inflation has been largely overcome without major economic damage. At the same time, the Fund is very concerned about the advancing protectionism in the world and also about government finances. I still see little urgency among policymakers to do much about this. I therefore fully share the IMF's concerns.

The purchasing managers' indices in Europe show a very slight improvement in October. This is welcome, but the industry in particular remains very weak.

Finally, a call: Dutch consumers, try to look at the world a bit more positively and don't be too frugal. I do realize that this last sentence does not relate well to the two preceding paragraphs.

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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