Opinions Hans de Jong
China offsets declining exports to the US
Unemployment in the Netherlands rose to its highest level in four years in September. In the last three months, there were an average of 8.000 more people unemployed each month. This remains a historically low percentage.
In September, the CPB predicted an average unemployment rate of 4,0% in 2026. That now seems on the low side.
Older people in particular contributed to the rising unemployment rate. The unemployment rate among 45- to 75-year-olds was 2,6%, compared to 2,2% a year earlier. For 25- to 45-year-olds, these percentages were 3,4% and 3,1%, respectively, while the unemployment rate among 15- to 25-year-olds actually fell from 9,0% last September to 8,8% this year.
The various indices that measure analyst confidence in the German economy show a mixed picture. The ZEW index, which measures the outlook, rose from 37,3 in September to 39,3 in October. However, the index indicative of the current situation weakened, from -76,4 to -80,0. This was the third consecutive month of decline for this sub-index. It appears the Germans haven't plugged the leak yet.
China's export figures surprised. The value of total goods exports was 8,3% higher in September than a year earlier, while exports to the US actually fell by over 27% due to Trump's import tariffs. I'm very pleased with the graph below; you have to give yourself a pat on the back every now and then... Both lines start at the bottom. And although the scale on which they are displayed differs, the ratio between the lowest and highest values is the same. This nicely illustrates that China's exports to the US developed more or less in parallel with China's total export value until the fall of 2022. It's a bit of speculation, but it appears that the protectionist policies of Trump-1, continued by Biden, have clearly limited the access of Chinese products to the US market.
Even more striking is the fact that the measures taken by Trump II against China have effectively driven Chinese products out of the US market, while China has more than fully compensated by exporting to other markets. Seen in this light, Trump's measures are more of a "very annoying" for China than a "game changer."
That's not to say China doesn't have problems. Much is said and written about overcapacity in China, which could lead to deflation. Inflation figures show that the country is indeed flirting with deflation. In September, consumer prices were on average 0,3% lower than a year earlier. While that's not entirely negative, I think the Chinese central bank needs to be wary, as they don't want to follow Japan's example thirty years ago.
We continue to be deprived of official US statistics due to the ongoing shut down from the US government. So we have to rely on statistics from other sources. The National Federation of Independent Business (NFIB), an organization representing small and medium-sized businesses, surveys its members monthly. Confidence, as reflected in their index, declined slightly in September: 98,8 compared to 100,8 in August. The following chart shows that, despite this, confidence remains very respectable compared to historical data.
The survey also asks SMEs about their pricing policy plans. This sub-index rose from 27 in August to 31 in September. This indicates that more businesses plan to raise their prices. The last chart shows that this sub-index is not at an extremely high level, but is clearly above the historical average. This likely indicates that Trump's import tariffs will push inflation up somewhat in the coming period.
Combining these NFIB data, there appears little reason for the Federal Reserve to urgently lower interest rates further. Nevertheless, statements from Fed Chairman Powell and several other board members suggest the Fed will still decide on another rate cut later this month. It should be noted that the Fed's official interest rate level can still be characterized as slightly restrictive.
summarizing
Unemployment in our country is rising slightly, especially among seniors. Analysts consider the current economic situation in Germany to be weak. The index fell for the third consecutive month.
China is certainly suffering from Trump's import tariffs. But while the value of exports to the US is plummeting, the value of total Chinese exports is actually rising. Incidentally, the country is now facing the threat of deflation.
Official statistics on the US economy are not currently being published. The confidence index among small and medium-sized businesses is at a level that indicates reasonable growth, although the index declined in September. A growing number of SMEs are planning to raise their prices. This is undoubtedly related to increased costs resulting from Trump's import tariffs. Nevertheless, financial market participants expect the Fed to lower interest rates further. I think they're right.
Hans de Jong
© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.
