Economic outlook: uncertainty prevails

Naturally, all attention is focused on the military actions in the Middle East and the impact this has on oil and gas prices. If shipping through the Strait of Hormuz remains restricted for an extended period, the conclusion must be that Donald Trump has likely dug his own political grave with that war against Iran, no matter how abhorrent the regime in Tehran may be.

About 20% of all oil and gas used worldwide must pass through the Strait of Hormuz, and if a significant portion of it is unable to pass through for an extended period, prices will rise even further. It is highly uncertain how long passage will remain restricted and how high oil and gas prices will rise. On top of this, damage to oil and gas installations limits production capacity, which could put prices under prolonged upward pressure. On the other hand, if hostilities end quickly, energy prices could normalize fairly rapidly, and we will return to business as usual. Uncertainty, therefore, prevails.

The first graph shows that the price increase of oil is comparable to that in 2022. The difference is that that price increase was driven primarily by strong demand back then, and by supply constraints now.

The following graph shows the European gas price over a twelve-month period. About 10% of the gas we consume comes from the Middle East. On a twelve-month basis, it looks spectacular.

The graph becomes less spectacular when we look at the last five years, as shown in the following image. In 2021 and 2022, the European gas price rose to much higher levels than now. But then again, that is a snapshot.

As I often write, unlike oil prices, gas prices frequently vary widely by region. The following chart illustrates the relationship between European and American gas prices. Americans are more than self-sufficient in gas and are therefore not at all dependent on gas from the Middle East. At the time of writing, the European gas price is 115% higher than at the beginning of the year, while the American gas price is trading approximately 15% lower (!). Gas in Europe (TTF) is currently five to six times more expensive than in the US (Henry Hub). This has consequences for the competitive position of energy-intensive industries in Europe.

Another pet peeve of mine is, therefore, how the energy-intensive industry in Europe is faring. When the European gas price rose sharply in 2021 and 2022, not only in absolute terms but also relatively to the gas price in the US, production in energy-intensive sectors in Europe began a substantial decline. Regulation and climate policy may well have played a role in this as well. One holds one's breath as to what will happen if the European gas price rises significantly further in the coming period.

The following chart shows that production in the five most energy-intensive sectors in Germany reached a new low in January for the period since 2016. In the chemical industry, the production level is now approximately the same as that of thirty years ago!!! And this is prior to the recent rise in the (relative) gas price.

Things aren't going all that well in Germany anyway. Admittedly, fiscal policy is becoming expansionary, and that is giving the economy a certain boost. But rising energy prices are a blow. The expectations component of the ZEW index, which measures analyst confidence, fell from +58,3 in February to -0,5 in March. The following chart shows the change in the index value from one month to the next. A drop like the one in March does not happen often. But it is certainly understandable.

Another pet peeve of mine is what I view as the existential struggle in which the German automotive industry is embroiled. The following chart shows the production of passenger cars in Germany (which is only a part of the worldwide production by German car manufacturers) and the export (so not the production!) of cars by China. In five years, Chinese car exports have grown from approximately one million units per year to nearly eight million. On the back of a cigarette pack, I calculate that the market share of Chinese cars on the world market, excluding the Chinese market, has risen in a short time from about 2% to 15-20%. Guess who?

The spectacular growth of Chinese car exports is the result of highly targeted policy. The following chart shows that the share of Chinese car production that is exported has risen from about 4% in 2020 to 25% now.

Donald Trump's policy is partly aimed at curbing China's development. That is why high American import tariffs apply to Chinese products. In January/February, the value of total Chinese exports was 21,8% higher than a year earlier. However, the value of Chinese exports to the US was 11% lower. Whether one can say that Trump's policy is successful based on this is doubtful. I suspect that many Chinese products still manage to reach the US, albeit via a detour.

The following chart is based on data from two German institutions that measure container throughput in ports. It is a curious graph. For a long time, throughput in ports in Northwest Europe (Germany, the Netherlands, Belgium, and France up to and including Le Havre) kept pace with Chinese ports. In the period 2022-2024, Europe clearly falls behind. This is also the period in which energy-intensive sectors face significant difficulties in our region. In 2024 and part of 2025, both lines appear to run reasonably parallel again, but in recent months, activity in Chinese ports has increased sharply once more. This is much less the case in our region.

Now, closer to home: the petrol station. United Consumers tracks the daily prices of the National Average Recommended Price (GLA). For those interested: Current Euro95 fuel pricesOn March 19, the GLA for Euro95 was €2,543. On the last day of 2025, it was €2,13. At a great many pumps, prices are considerably lower. Statistics Netherlands (CBS) publishes daily figures, albeit with a delay of a few days, for petrol, diesel, and LPG. The following two charts show what has happened.

Numerous central banks met this week to discuss interest rates. Most left them unchanged. In Australia, the central bank raised interest rates, while in Brazil, rates were actually lowered. However, the Fed and the ECB left interest rates unchanged. Uncertainty is high, and central banks face a dilemma. The energy price shock will push inflation up. That might argue for higher interest rates, but economic activity is taking a hit, which might argue for lower rates.

The expected higher inflation in the short term is caused by a supply-side shock. Monetary policy can do little to counter this, as it influences the demand side of the economy. Therefore, I believe the ECB and the Fed will wait for the time being. Interest rate cuts have, at least for now, been removed from the agenda. Interest rate increases will only be considered when signs emerge that the energy price shock is developing into a broader inflationary process. That is not the case for the time being.

In hindsight, the ECB and the Fed underestimated inflation in 2021 and 2022 and reacted quite late with interest rate hikes. They will not want to make that mistake again, so perhaps interest rate increases are closer than I think. On the other hand, the official interest rate is now clearly higher than at the beginning of 2021. Hopefully, the ECB realizes that repeating the mistakes of 2008 and 2011 must also be avoided. At that time, the ECB raised interest rates because inflation was above the target. But the ECB soon had to make a hasty U-turn because the economy weakened severely.

Closing
There is really only one concluding remark. It is all very uncertain! If tanker traffic through the Strait of Hormuz remains largely impossible for an extended period, the outlook for the global economy does not look very good. I will leave it at that.

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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