Opinions Hans de Jong
World trade growth is acceptable, uncertainty remains
Statistics Netherlands (CBS) confirmed this week that our inflation rate rose to 3,3% in September, the same as the "rapid estimate" figure a week earlier. Using the European benchmark, the HICP, our inflation rate was 3,0%, compared to 2,2% for the eurozone as a whole. I've written before that I'm beginning to fear that our inflation will remain above the eurozone average for a prolonged period. We'll see.
The price development of some products is strongly influenced, or even determined, by the price on the global market. Think of coffee (+22,4% year-on-year in September) and chocolate (19,0% year-on-year in September). The price of meat is also partly determined by the global market. Yet, something strange is happening with beef. Its price has been rising sharply recently. In our country, the price increase has been noticeably sharper than in neighboring countries. In September, the price in our country was 33,5% higher than a year earlier. Incidentally, the German price for September is not yet available. Why the price of beef in our country is rising so much faster than in our neighboring countries is beyond me.
Price increases for labor-intensive services are moderating. Haircuts for children and men cost 2,9% more in September than a year earlier, while women had to pay 2,4% more. In both cases, this was the lowest price increase in over three years. On the other hand, driving lessons were 5,7% more expensive than a year earlier.
German industry in big trouble
It's not the first time we've reported that things aren't going well for German industry. I'm staring at the figures and graphs in disbelief and can't understand why companies and policymakers aren't showing much more urgency.
Industrial production fell by 4,3% in August compared to July. The year-on-year decline was 3,9%. Adjusted for the number of working days, the decline is even worse. These aren't great figures, but it's important to note that monthly figures are volatile. However, the broader perspective is alarming. Aside from the pandemic and the financial crisis, production was at its lowest level since 2006!
The automotive industry is crucial for Germany. The overwhelming growth of Chinese car manufacturers poses a huge threat. In just a few years, the percentage of cars manufactured in China that are exported has grown dramatically. Before the pandemic, only about 3,5% of Chinese cars were exported. Within a few years, it will be over 20%. To my knowledge, German car companies do not export from China, although Volkswagen announced earlier this year that it would do so to serve markets in Asia, South America, and the Middle East. Incidentally, German car manufacturers are experiencing so much competition in the Chinese market that they reduced their production there by 15% to 25% in the first half of the year.
Better news came this week from global trade. The World Trade Organization (WTO) predicts 2,4% growth in international trade in goods for the current year. In August, the forecast was 0,9%. Next year, growth will decline sharply again, according to the WTO. This is entirely due to the trade war, although it has been said that its effects are difficult to calculate due to the lack of precedent.
Trade in AI-related goods accounts for half of the growth. That's impressive. This is also reflected in the figures for Taiwan, which is strongly focused on IT. Taiwan's export value in September was a whopping 33,8% higher than a year earlier. Surprisingly, Taiwanese exports to the US rose by 51,6%.
Closing
Our inflation remains above the eurozone average. This could persist for some time.
I've written about German industry many times. Production levels in September were the same as in 2006. What a disaster! Fortunately, our industry is doing better, though that's not exactly a big deal either.
Global trade growth is expected to be positive this year. The future is uncertain due to the trade war.
Hans de Jong
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