Global Daily – Euro consumer slump + global trade bottlenecks
Euro Macro: Consumption in France and Germany drops in January. The two biggest eurozone countries have published data on retail sales and goods consumption in January. During that month, shops were closed in Germany, whereas they were allowed to be open in France. France’s goods consumption data include more items than Germany’s retail sales (e.g. cars and household energy), but the two series tend to each give a good indicator for household spending on all items excluding services, particularly when we include the separate series for car sales in Germany.
The volume of retail sales in Germany fell by 4.5% mom in January, following upon a decline by 9.1% in December, when shops needed to close around the middle of the month. The weighted average of German retail sales and car sales fell by around 7.5% in January and by about 8% in December. In France the shops were open in January, but the volume of goods consumption nevertheless fell by 4.5% mom. Consumption of manufactured goods was particularly weak, falling by 12.9% mom. Having said that, the decline in consumption in France in January followed upon a sharp rebound in December when shops were allowed to re-open after having been closed since the start of November.
Looking through the volatility related to closing and re-opening of shops we have compared the current levels of retail sales and consumption to pre-pandemic levels (average December 2019-February 2020). It turns out that retail sales in Germany were more than 5% below pre-pandemic levels in January, whereas France’s good consumption was only 0.5% below pre-pandemic levels. Compared to pre-pandemic levels, consumption of food products and household durables have risen noticeably in France, whereas consumption of transportation equipment and textile and clothing have dropped.
We expect consumer spending in both countries to rebound sharply in the second half of the year as restrictions are rolled back. Having said that, there seems to be more upside for consumer spending in Germany compared to France, given that the French consumer has already made up for some of the past losses. (Aline Schuiling)
Global Trade: Bottlenecks may cap rebound – Since early 2020, developments in global trade and industrial production have been strongly shaped by the covid-19 pandemic. After collapsing by 16% in January-May 2020 during the first round of lockdowns, CPB’s global trade indicator has shown a sharp rebound (+20% in June- December). Thus, the rebound in global trade has extended into Q4-20, despite virus flare-ups and renewed lockdowns in large parts of the world, including Europe. This is in line with our view that the impact of this second round would primarily be felt in services and would be less harmful to global manufacturing and trade compared to the havoc to global supply chains created by the first round of lockdowns. Consistent with our global macro view, we expect the rebound in global trade to extend into 2021 and 2022.
Still, over the past few months we have seen more signals of capacity constraints in global trade, illustrated by for instance longer delivery times. While these are not unusual during cyclical rebounds, looking at the extent to which these delivery times have lengthened this time, it seems there is more at play than just a cyclical correction. Another indicator pointing to bottleneck issues is the surge in container freight rates, particularly the rates covering shipping from Chinese ports. Container freight rates from Shanghai have quadrupled over the past few months. All of this looks in part related to the surge in China’s exports in the course of last year, which was supported by pandemic-related demand for goods like medical supplies, computer products and other goods that can be bought online (sectors in which China has a competitive edge). However, supply side issues play a role as well, such as the fact that the supply of large container ships is quite inelastic. It takes time for such large vessels to be produced, or for existing vessels to be moved back to Chinese ports.
Longer delivery times and surging freight rates point to bottlenecks in global transport of goods. We assume these bottlenecks will be a temporary phenomenon that will be resolved in the course of this year, as pandemic disturbances fade and supply and demand find a new equilibrium. However, these issues may cap the cyclical uptick in global trade in the first half of this year. For more detailed analysis on this topic, please see our published earlier today (Arjen van Dijkhuizen)