Wmc 090427

27 April 2009

Weekly Macro Comment Han de Jong, Chief Economist

Uproar about Sesame Street •

Business sentiment in Europe improves

•

Harder data continues to be more negative

•

Fed continues its quant easing

How deep the crisis is in any country can perhaps be

were down 5.7% yoy in March and retail sales were down

concluded from what dominates the local news. My verdict is

4.0% in real terms.

that the situation in the Netherlands is not that bad, relatively speaking. One of the main news items here recently has been

Harder economic data continued to be more negative than the

Sesame Street. The Dutch version of this children’s TV

business surveys. New industrial orders in the eurozone were

programme has been running for decades. It used to be

down 34.5% yoy in February, slightly worse than 34.3% in

broadcast at 6.30 pm, but now television bosses have decided

January. We knew this already, of course, from individual

that it should move to another slot. According to many, this is

countries.

wrong. Allegedly, 6.30 is the only right time for this show. Its target audience will have their dinners eaten by then and not

In Japan, the all-industry activity index fell 2.0% mom in

be in bed yet. The leading actor is Aart Staartjes, or ‘Meneer

February, after -1.7% in January. GDP in the UK fell 1.9% qoq

Aart’ as he is called. After doing the show for decades,

in Q1 on a preliminary basis. This was the third consecutive

‘Meneer Aart’ is threatening to quit if it is not put back to 6.30

quarterly decline, following -1.6% in Q4 and -0.7% in Q3. The

pm. While this is, indeed, a big thing - when Sesame Street

quarterly decline was the most severe since a contraction of

dominates the news, how bad can the economic crisis be,

2.4% in 1979. The yoy rate has now fallen to -4.1%.

huh? Durable goods orders in the US fell 0.8% mom in March. This Business confidence across the eurozone is showing signs of

was greeted as being not too bad. However, February was

recovery. The preliminary April PMIs all improved. The

revised down from +3.4% to +2.1% and on a quarterly basis,

manufacturing PMI showed a clear improvement, the first one

the key elements were all weaker in Q1 than in Q4. This

this cycle, while the services PMI showed a second clear

suggests that business investment will have made a more

monthly rise. The authoritative German Ifo index also improved

negative contribution to overall GDP growth than in Q4. US

in April: 83.7, versus 81.1 in March and is showing a similar

home sales, both existing and new homes, eased a little in

pattern to the eurozone’s PMIs. The expectations component

March, but February’s rise was not fully undone. Home sales

of the Ifo-index continued its climb, its fourth consecutive

now appear to be bottoming out. Well, at a very low level, that

monthly rise. This component reached a level of 83.9 after a

is. But any improvement is welcome and it suggests that the

low of 76.9 in December. The April reading exactly matches

measures taken to support the housing market are at least

the low of the 1992/1993 recession. Perhaps more importantly,

finally having some impact .

the current-conditions component rose in April, its first monthly increase in many months. Business surveys in France showed

Overall, our longstanding view that although this is a bad

the same trend. In line with this, consumer and business

recession, actions taken by policymakers should start to have

confidence has improved in Holland and Belgium. All this

a positive impact in the course of this year, appears to be

matches similar patters in Asia and the US with a slight delay.

borne out by recent data. It remains to be seen how sustainable any improvement is. In my opinion, three things

Another modest positive was reported in Japanese trade data.

must happen simultaneously for a sustainable recovery to

Exports were down 45.6% yoy in March, a little better than the

start. First, activity levels must be raised, in other words, the

-49.4% in February. Imports also strengthened: -36.7% against

recession must stop. Second, the destruction of wealth must

-43.0%. South Korea’s Q1 GDP was, surprisingly, up 0.1%,

cease. That means that house prices must stop declining,

thanks to the government’s stimulus. On a yoy basis, GDP was

particularly in the US, but elsewhere too. And third, the banking

down 4.3% lower. On the negative side, Russian real wages

system must function normally, whatever that is exactly. So far,

HAN DE JONG +31 (0)20 628 4201

ECONOMICS DEPARTMENT

27 April 2009 it looks like policymakers are achieving some success in all areas. On 4 May, the US Treasury will announce the results of the stress tests for the country’s 19 largest banks. There was a rumour last week that 16 of them emerged as technically insolvent. This rumour spooked the markets. Even if this is actually the result, I cannot imagine that the authorities would present it as bluntly as that. They will obviously try to use 4 May as a confidence boosting exercise. The Fed last week continued its policy of quant easing. It bought just over USD 12 bn of Treasuries and USD 80 bn of mortgage-related securities (Agency debt and actual MBS). The Fed’s balance sheet increased by some USD 70 bn on the week. It has now bought USD 60bn of Treasuries since this policy started just over a month ago. The Fed is thus ‘on schedule’ as it announced it would buy some USD 300 bn over a six-month period. The activities in the area of MBS are actually much more sizeable. The Fed started buying MBS in January and has since bought USD 367 bn.

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HAN DE JONG +31 (0)20 628 4201

ECONOMICS DEPARTMENT