Economy in Brief

The Belgian National Bank index fell to -16.4 in January from -12.7 in December, snaking below its November 2023 level of -15.0. The index by itself is not particularly significant except it does track quite effectively both the German and the EU indexes issued by the European Commission. Since the Belgian index is released first, it's a harbinger of what we can expect from those other indexes and what's suggested here is that there will be further deterioration in January.

The total index The total industry Belgian index has a correlation of 0.85 with the EU index and of 0.78 with the German index. However, it's correlation based on month-to-month changes is even higher, at 0.92 with the EU changes and 0.85 with the German changes. These are all respectably high numbers and the correlations with the changes are quite high. The correlation on the changes corresponds with an R-squared with the EU of 0.86 and an R-squared with the German changes of 0.72.

Manufacturing in Belgium The Belgian manufacturing index slips to -22 in January from -17.8 December and is below its November value of -19.3. In January, the production trend turned more deeply negative, logging a reading of -19 compared to -7 in December and -5 in November. The domestic and foreign order trends also deteriorated in January compared to December; however, the foreign order trend in January is above its November level. Prices continue to show negative values and then in January the price trend declined by more after declining by less in December.

Other Belgian sectors Wholesaling and retailing strengthened in January compared to December, but metric is weaker than its November reading. Similarly, construction weakened relative to December but it's stronger than its November reading. Business services along with inventories are the only surveyed metrics that show positive readings. In January business services weakened compared to December, falling to +4.6 from +9.8; however, the January reading is still stronger than the November reading.

Trending changes Looking at changes in these metrics, only business services show positive changes over three months, six months, and 12 months. Prices and domestic order trends are the only metrics that show positive changes over three months and six months.

Rank standings The rank percentile standings reveal that weak readings abound in every one of the categories, showing percentile standings below their respective 50th percentiles everywhere. That means that all the readings are below their respective medians for this period. Data in the table are ranked across observations back to January 2010.

The distribution of weakness is concentrated in the areas of ‘very weak’ The only category close to its median for the period was inventories with the 49.2 percentile standing. After that, the next strongest standing is business services at a 38-percentile standing, followed by prices at a 25.8 percentile standing. The third highest standing in the table is at the border of its bottom quartile! After ‘prices’ all the categories are somewhere in their 15th percentile with all but one of the remaining categories below their respective 10th percentiles.

Weak with weak momentum These conditions show us a great deal of weakness in Belgium from an index that is highly correlated with German and EU indexes. The only momentum in this table comes from Belgian business services where there's a steady diet of positive changes underway. The changes that are underway for business services are tending to get larger/stronger over shorter periods, which is a good sign. However, manufacturing continues to show negative results and the current assessment for orders continues to show negative results.

The chart is for the European Monetary Union and there we see relative stability for services activity as manufacturing is turning higher. Turning to the table we see most of the responses- that means 10 out of 16 responses- show conditions in manufacturing or for services or for the composite, improving rather than weakening in January 2024. December also showed a strong move towards strengthening compared to weakening, especially against the history of the recent past. December also showed 10 metrics strengthening and only six weakening.

Beginning with this report our history for comparison moves up to January 2020 instead of to January 2019. On this timeline, the January 2024 values for the PMI responses in the table show only three above the 50% mark which means there are only three that have PMI standings above their median for this period.

Despite the slight improving tone in this report, it's quite clear that the changes and these PMI metrics back to January 2020 show that all but six of them are still lower than they were at that time - a significant span of four years. That's a long time for PMI gauges to not have improved.

With this improvement in January, on the heels of improvement in December, we now have over three months improvement across the board with only four exceptions. The exceptions are France where the service sector deteriorates and drags the composite down as well. The service sector in Germany weakens over three months and the manufacturing sector in Japan does so too.

On balance, over three months we're seeing improvements occur in the European Monetary Union, the aggregate index is up by 1.3 points, pushed strongly ahead by an improvement in manufacturing of 3.5 points, while services sector only creeps higher during this period rising by 0.5 points. The U.K. shows improvement on all gauged in each of the last three months – a power-house response and the strongest composite gain over three months in the table.

Something’s less rotten in Denmark Denmark's consumer confidence indicator to start the New Year improved to -8.4 in January from -13 in December. The net negatives still rule; however, the reading is less net negative in January than it was in December 2023. We start 2024 being grateful for small changes in the right direction.

Looking at the averages, the Danish consumer confidence indicator over 12 months displays an average value of -14.2, over six months the average is -11.2, and over three months the average is -10.6. This is a clear progression toward improvement and even more striking when we look back at the previous 12 months, the older 12-month average was -24.2. In addition to that, when we look at the January 2024 reading compared to the three-month average, we see that progress is still in-train. Signs of progress proliferate but curb your enthusiasm, as there is a long way to go to expunge negativism.

Monthly Survey Responses Survey respondents in January assess that the financial situation for the last 12 months was slightly worse than it had been in December; however, for the more important financial situation over the next 12 months, they see an improvement with the index rising to +4.9 from +1 in December. The general economy over the last 12 months was assessed to have improved to a -10 reading compared to -17.4 in December. The general economy reading as expected for the next 12 months moves up to -3.6 from -6.6 in December. The assessment of consumer prices over the last 12 months shows a weaker reading in January than in December; however, for the next 12 months there's some acceleration expected with the January reading at +2.8 compared to December at -2.5. Unemployment trends for the next 12 months are seen as improving: the response value of +10.7 in January is down from +13.9 in December.

The perceived environment The Danish survey also gives us certain environmental factors that consumers assess. The favorability of time to purchase (now), for example, improved in January to -21.6 from -24.3 in December. The favorability of time to purchase in the next 12 months also improved to a -7.3 in January from -8.3 in December. The favorability of time to save at present worsens slightly in January compared to December; the favorability to save over the next 12 months also deteriorates. The general financial situation of households now is assessed as improved at +20.7 up from +18.5 in December, but that still leaves it below its November value of +23. And as we shall see below, ‘better’ is an improvement but does not necessarily make conditions ‘good.’

Steady progress... The categories that are making steady progress to better levels are the financial situation over the last 12 months, the financial situation over the next 12 months, the general economy over the last 12 months, pressure on consumer prices over the next 12 months. There is also improvement in lowering expected unemployment trends, and the favorability of the time to purchase at present and the favorability of the time to purchase in the next 12 months (the latter, despite a monthly deterioration) both are carrying positive momentum. And the favorability of time to save at present has been trending higher as well. That’s a lot of ‘trending higher.’

Still some key deterioration However, the general financial situation of households at present has been deteriorating steadily but slowly from 12-months to six-months, to three-months. Past consumer price inflation, similarly, had been weakening on that progression.

Rankings for confidence metrics: where they stand We have to look at how the metrics have changed monthly, and how they are trending more broadly. Next, we look at where they stand in a queue of ranked values back to the mid-1990s. The far-right hand column sets the current consumer confidence indexes in a grid of rankings and data back to 1995. On that score, the only readings above a 50% mark which represents the median over this period, are consumer prices over the last 12 months and unemployment trends over the next 12 months. Fortunately, the unemployment trends are working to lowered expectations sequentially; however, despite that trend, the level of unemployment expectations (fears) is still nearly a top 25-percentile reading. Meanwhile, things like the general financial situation of households carries a ranking around its 5th percentile- overall an extremely weak ranking. The favorability of time to make purchases at present has a 9.1 percentile standing! The financial situation currently, as well as over the last 12 months, shows standings in the lower ten percentile range.

In this week’s letter, we dive into some of the key themes relating to the ASEAN-5 region, including topics on inflation, monetary policy, tourism, trade, and global value chains. For clarity, we define ASEAN-5 economies to comprise Indonesia, Malaysia, Singapore, Thailand, and the Philippines. We note that while inflation has moderated in the region, developments at the country level have been uneven. We also take stock of recent monetary policy trends noting that the region’s central banks seem likely to hold policy rates steady until inflation cools further. Next, we examine tourism, acknowledging the absence of a strong recovery in Chinese tourist arrivals amidst persistent economic troubles at home. We next move to trade, noting the interim stabilization of the region’s exports and explore recent developments in the region’s trade relationship with China. Lastly, we take stock of the region’s standing in global value chains, by examining the value they add to their exports. Also included in the last segment is a nod to the slew of government initiatives aimed at catapulting their respective economies toward innovation and new technologies.

Inflation Headline CPI inflation has cooled significantly in ASEAN-5 economies over the past year on average (chart 1), as food and energy price pressures eased. Average headline ASEAN-5 inflation has fallen to 2.3% y/y in November 2023, from a peak of 6.2% in September 2022. Meanwhile, average core ASEAN-5 inflation moderated to 2.1%, after having peaked at 3.7% in January 2023. Delving deeper, however, we find that progress on disinflation has been uneven across the ASEAN-5 economies. For instance, headline inflation in the Philippines remained comparatively high at 4% in December 2023 despite having cooled from its peak of 8.7% in January 2023. In contrast, Thailand remained in deflation for a third straight month in December 2023, with prices having fallen 0.8% y/y for the period. Nonetheless, price pressures in ASEAN-5 as a whole are likely to be suppressed further if current monetary policy settings are maintained. With that said, inflation risks remain. For one, near-term supply-side bottlenecks induced by regional conflicts (e.g., Russia-Ukraine, Israel-Hamas) may exert external-led price pressures. Also, an eventual rebound in domestic demand in ASEAN-5 may add to domestic inflationary pressures.