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
concluded from what dominates the local news. My verdict is
that the situation in the Netherlands is not that bad, relatively
speaking. One of the main news items here recently has been
Sesame Street. The Dutch version of this children’s TV
programme has been running for decades. It used to be
broadcast at 6.30 pm, but now television bosses have decided
that it should move to another slot. According to many, this is
wrong. Allegedly, 6.30 is the only right time for this show. Its
target audience will have their dinners eaten by then and not
be in bed yet. The leading actor is Aart Staartjes, or ‘Meneer
Aart’ as he is called. After doing the show for decades,
‘Meneer Aart’ is threatening to quit if it is not put back to 6.30
pm. While this is, indeed, a big thing - when Sesame Street
dominates the news, how bad can the economic crisis be,
huh?
Business confidence across the eurozone is showing signs of
recovery. The preliminary April PMIs all improved. The
manufacturing PMI showed a clear improvement, the first one
this cycle, while the services PMI showed a second clear
monthly rise. The authoritative German Ifo index also improved
in April: 83.7, versus 81.1 in March and is showing a similar
pattern to the eurozone’s PMIs. The expectations component
of the Ifo-index continued its climb, its fourth consecutive
monthly rise. This component reached a level of 83.9 after a
low of 76.9 in December. The April reading exactly matches
the low of the 1992/1993 recession. Perhaps more importantly,
the current-conditions component rose in April, its first monthly
increase in many months. Business surveys in France showed
the same trend. In line with this, consumer and business
confidence has improved in Holland and Belgium. All this
matches similar patters in Asia and the US with a slight delay.
Another modest positive was reported in Japanese trade data.
Exports were down 45.6% yoy in March, a little better than the
-49.4% in February. Imports also strengthened: -36.7% against
-43.0%. South Korea’s Q1 GDP was, surprisingly, up 0.1%,
thanks to the government’s stimulus. On a yoy basis, GDP was
down 4.3% lower. On the negative side, Russian real wages
HAN DE JONG +31 (0)20 628 4201
were down 5.7% yoy in March and retail sales were down
4.0% in real terms.
Harder economic data continued to be more negative than the
business surveys. New industrial orders in the eurozone were
down 34.5% yoy in February, slightly worse than 34.3% in
January. We knew this already, of course, from individual
countries.
In Japan, the all-industry activity index fell 2.0% mom in
February, after -1.7% in January. GDP in the UK fell 1.9% qoq
in Q1 on a preliminary basis. This was the third consecutive
quarterly decline, following -1.6% in Q4 and -0.7% in Q3. The
quarterly decline was the most severe since a contraction of
2.4% in 1979. The yoy rate has now fallen to -4.1%.
Durable goods orders in the US fell 0.8% mom in March. This
was greeted as being not too bad. However, February was
revised down from +3.4% to +2.1% and on a quarterly basis,
the key elements were all weaker in Q1 than in Q4. This
suggests that business investment will have made a more
negative contribution to overall GDP growth than in Q4. US
home sales, both existing and new homes, eased a little in
March, but February’s rise was not fully undone. Home sales
now appear to be bottoming out. Well, at a very low level, that
is. But any improvement is welcome and it suggests that the
measures taken to support the housing market are at least
finally having some impact .
Overall, our longstanding view that although this is a bad
recession, actions taken by policymakers should start to have
a positive impact in the course of this year, appears to be
borne out by recent data. It remains to be seen how
sustainable any improvement is. In my opinion, three things
must happen simultaneously for a sustainable recovery to
start. First, activity levels must be raised, in other words, the
recession must stop. Second, the destruction of wealth must
cease. That means that house prices must stop declining,
particularly in the US, but elsewhere too. And third, the banking
system must function normally, whatever that is exactly. So far,
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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