As you may have heard, former President Donald Trump and Chinese President Xi Jinping just concluded a landmark meeting. It was a major step seen as a thawing of US-China relations, after months of worsening trade tensions. Yet this positive evolution is happening at a pivotal moment in European politics. In particular, the centrist D66 party in the Dutch elections has surged. Wrapped all around this very unequally is the impact of economic indicators coming from Europe and Asia. For now, the world is still in the midst of a pendulous growth/inflation dynamic.
Few diplomatic affairs have drawn as much attention as the meeting between Trump and Xi. Both leaders injected profound humor and grace while tackling important trade concerns. In return, and as part of their phase one settlement, Trump said that he would drop tariffs on Chinese goods from 57% to 47%. This decision should reduce these trade tensions that have defined their relationship in recent years.
In exchange for these concessions, China promised to start importing US soybeans again, an important US agricultural export. Beijing promised to further address U.S. concerns over the illicit trade in fentanyl. This dangerous synthetic opioid has deeply impacted public health throughout the United States. Both countries clearly have an interest in stabilizing trade relations. This commitment indicates a desire to coalesce around a fundamental agreement on major principles, allowing the door to remain open for further negotiations.
Dutch Elections Signal Political Change
Dutch elections taught us to expect the unexpected, as a remarkable political drama unfolded in the recent Dutch elections. The centrist D66 party, a favorite of the professional class, climbed by the bushel to become a major factor in establishing the Dutch governing coalition. This change is indicative of a general movement towards centrism policies in the face of growing populism throughout Europe.
In the opposite direction, Geert Wilders’ far-right Party for Freedom (PVV) went down in popularity. This loss further indicates that the far-right’s hold over voters may be breaking. They’re seeking out a better alternative that provides common sense governance over hyper-partisan, name-calling rhetoric. These results should remind all of us that coalition-building will be key in the years ahead.
To reconstitute a new government, at minimum, at least four parties will have to cooperate together. This unusual cooperation seems to ensure that Wilders’ deeply anti-democratic party will be kept out. As discussions of a new coalition get underway, both sides can learn from the coalition-building lessons. We need a functional government, with the ability to address pressing matters including climate change, immigration reform, and economic recovery.
Economic Indicators Reflect Regional Growth
Economic data out of the Eurozone points to at best a lukewarm hopeful growth path for the next several quarters. The euro area GDP will likely increase by only 0.1% quarter-on-quarter in the third quarter of 2023. On a year-over-year basis, this growth is projected to be 1.2%. Taken together, these figures point to a continuing measured recovery with headwinds still setting in such as continued inflationary pressure and geopolitical uncertainty.
Germany and Spain set to publish flash estimates of October inflation today. These numbers will tell us about the economic situation in these key Eurozone countries. With inflation persistence an ongoing worry, central banks are watching each of these signals intently as they help guide policy actions.
In Sweden, the latest GDP surprise was on the upside – real growth came in at 1.1% q/q, 2.4% y/y. This encouraging result adds to the signs of overall improvement for the Nordic economy. It remains a testament to the region’s tenacity in standing impervious to global recessions.
Norway’s retail sales data for September showed a reduction of -0.5% m/m sa. This drop likely re-ignite conversations about consumer confidence and spending trends as the nation continues on its path to economic rebound.
Central Banks Navigate Economic Challenges
On September 18, the US Federal Reserve cut its policy (federal funds) rate by 25 basis points, as the markets had unanimously expected. With this decision, the era of quantitative tightening (QT) is over, effective December 1. Federal Reserve Chair Jerome Powell delivered a hawkish message during a press conference, emphasizing that any potential rate cut in December remains uncertain.
The Fed’s approach aims to balance economic growth with rising inflation concerns, as they navigate the complex interplay of domestic and global factors affecting monetary policy. Market participants will be closely watching upcoming economic data to determine what the central bank may do next.
In Asia, China is preparing to release its official Purchasing Managers’ Index (PMI) figures for October, which cover both manufacturing and non-manufacturing sectors. Environmental justice advocates will continue to watch these statistics with laser focus. They can provide critical clues to the overall health of China’s economy and how it is recovering from COVID-19.
Japan is due to release retail sales data and October inflation soon. That information will help us understand how consumers are adapting in one of Asia’s largest and fastest-growing economies. Member nations are facing these same inflationary pressures and growth dynamics on a daily basis. These numbers are going to be key in crafting future economic policy.