High inflation and expensive energy bills, combined with low consumer confidence, have delivered severe economic blows in 2022, making a recession look like a logical consequence for the economy. However, there are also signs that things may go a little too far.
The fact that the fireworks have sold for a record amount and that ski holidays are immensely popular, according to BNR in-house economist Han de Jong, indicates that the current economic circumstances are “difficult and unpredictable”. ‘I’ve spent most of the year on the line that a recession is coming, this is still a plausible scenario, but there are also signs it could be better than expected.’
Positive signals
By this, De Jong is referring, among other things, to the measures taken by the government to strengthen purchasing power. In addition, he will raise the minimum wage, as will the AOW and many pensions. The energy price ceiling also comes into force. “That means everything can go better than expected, even the latest figures aren’t that bad.”
According to De Jong, the most positive sign is the drop in gas prices. ‘On the last trading day of 2022, a megawatt hour cost 76 euros. Before the pandemic that price was between 15 and 20 euros. We are still well above it, but in August last year the price of petrol was 350 euros. This sharp decline is good news.’
Low point production seems in sight
Activity in the Dutch manufacturing sector declined further in December, but according to the Dutch Association of Purchasing Managers (Nevi), the decline is less marked than in recent months.
The so-called Purchasing Managers Index rose to 48.6 in December from 46 in November. This means that activity is still down, because growth is only visible above a score of 50. According to ABN Amro sector economist Albert Jan Swart, the bottom is likely in sight. ‘The number of new orders is still down, but much less than in November. The demand for capital goods, such as cars, has even increased slightly again,” he told ANP news agency.
Know what you want
Yet there are still many signs that a recession is imminent, as can be seen, for example, with the so-called yield curve. “Normally, that curve shows that long-term interest rates are higher than short-term interest rates. But it rolls around from time to time, so let’s talk about one inverted yield curve. And in the United States for the last 50 years, every recession has been preceded by a reverse yield curve and now it is. This is no guarantee that America will actually end up in a recession, but it would mean a departure from a long-term model.’
And if the US enters a recession, Europe often follows suit. Several economists suggest that the recession that “we” may or may not end up in will be short and mild. And in the long run, a recession wouldn’t be all bad news. “It is true that recession is part of the economy, it comes and goes in waves. But the problem is that you don’t know what kind of dynamics will emerge after a recession,’ says De Jong. ‘During a recession, spending goes down, with the current rise in interest rates, so will borrowing costs for companies. And if even companies face low spending, a recession can last longer and still not be as mild. So know what you want.’
Inflation numbers
New inflation data will be presented this week. December data will be released on Friday. ‘For the first time, Statistics Netherlands publishes harmonized Dutch and European data simultaneously. Before, there was always a week in between, but now they come in one day.’
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
