De Jong sees four factors reducing recession fears. First he mentions the sharp fall in gas prices in Europe. “It is still three times higher than before the pandemic, but 80 to 85% lower than in August.” A second factor is the reopening of China, which was actually quite unexpected in December with the end of all lockdowns.
Tailwind
‘What is also happening right now is that the logistical disruptions around the world that have been a result of the pandemic are disappearing like snow in the sun. Finally, the costs of international container transport have fallen sharply. “These factors combine to provide a strong tailwind for the global economy.”
But De Jong warns that there are still warning signs. ‘The yield curve, the structure of interest rates, is inverted. Traditionally a signal that a recession is coming. Then we know that central banks continue to raise interest rates, they have also stopped their policy of buying bonds. The Fed is actively shortening the balance sheet.”
Not a good sign
De Jong also finds it surprising that the European Central Bank has raised interest rates and published the results of the Bank Lending Survey, a survey that the ECB conducts among banks once a quarter. It shows that European banks say they further tightened credit conditions for businesses in the fourth quarter of last year and that credit demand continues to decline. “It’s actually not a good sign.”
De Jong finds it extraordinary that there is a significant tailwind for the economy, but also that there are strong gusts of wind right in his face. “The tailwind will dominate, but it could just change over the course of the year.”