No ‘soft landing’ for VanMoof, but for economics

According to macroeconomist Edin Mujagic, the collapse of bicycle manufacturer VanMoof is nothing more than the collapse of a zombie company. ‘Recently many such companies are going bankrupt.’ BNR lists the most important economic news of the past week for you so that you can stay fully informed.

Last Tuesday, the curtain officially came down for bicycle builder VanMoof, after a tumultuous week in which sales of bicycles stalled and even the shop at head office closed. However, according to Mujakic, this is not surprising. In the truest sense of the term, a zombie company is a company that generates turnover but does not have enough left over to pay its debts after all fixed expenses such as wages and rent have been paid. Sometimes it’s not even enough to pay the interest on the loan,’ points out Mujajic.

Elsewhere in the world things seem to be going well, says Mujakic the same. According to him, the global economy is in the middle of what is known as a ‘soft landing’, a rare reality. During a soft landing, the central bank raises interest rates enough to control inflation, but not so much that the economy shuts down.

Rare

That’s an absolute rarity, says Mujakic. “In the past, that happened very rarely, and the common denominator at the time was that central banks anticipated problems,” says Mujakic. ‘Unlike now, now the banks are reacting to it.’ But to say that the central banks’ mission has succeeded, Mujakic thinks, is going a bit too far. As it seems, it is still too late to decide that the time has come.

BNR’s home economist Han de Jong supports him in this, arguing that pain may be necessary for recovery. If history has taught us anything about hyperinflation, it’s that we must struggle to bring it under control. And inflation gets out of hand and the more stubborn it is, the more painful it is to fight,” he says.

Depression

“It is clear that inflation is out of control. Central bankers, who first told us that inflation was temporary, have been warning for some time that it is more stubborn than expected,’ says de Jong. So it seems logical to conclude that we will have to struggle a bit to control inflation. In the ‘real’ economy, the pain consists of contraction, recession, bankruptcies and, above all, rising unemployment and sharp falls in financial markets, mainly stock prices.

A recession in the U.S. seems inevitable, Mujakic adds. “In the fall, the U.S. economy is in recession,” he argues. He thinks the difference between the ten-year rate and the three-month rate says it all, even if it looks like inflation will eventually win out. Generally, the longer the term of the loan, the higher the interest rate. ‘As a lender, if you’re lending for ten years, the money is running all kinds of risks over that time,’ Mujajic continues. ‘You want to insure it in the form of higher interest.’

measurement

However, that doesn’t mean there can’t be exceptions. In this case, the so-called yield curve is inverted. While you can’t say anything with 100 percent certainty, Mujagic asserts that the spread between ten-year and three-month rates in the U.S. has turned negative every time in recent decades just before the recession. “If we see the difference now, we have to conclude that it’s negative now,” he says.

So the future is still open. This is echoed by TNB boss Klaus Knott, who is unsure if interest rate hikes will be implemented after July. A conscious pause may be active. Knott made his remarks during the G20 finance leaders’ meeting in Gandhinagar, India.

ECB

The ECB is almost certain to raise interest rates in the euro zone again next week to curb inflation. After that, further increases seem assured. “I think it’s a must for July, and it’s a possibility for anything after July, but not a certainty by any means,” Knott said.