Will Eurozone deflation kill off the recovery in new motorcycle sales after just six months?JUST as you thought it was safe to get back into the water, the surprise fall in Eurozone inflation from 0.7 percent in April to 0.5 percent in May is a reminder that the economic recovery in the 18 nations that share the single currency remains far from robust.
Many commentators and politicians are now beginning to ring alarm bells about the possibility that Europe could be heading for a deflationary spiral that could result in negative interest rates and a moribund business climate of the kind that haunted Japan for so long.
It is widely expected that the European Central Bank (ECB) will have taken dramatic action by the time you are reading this – action that needs to be engineered to reverse a downslide into “lowflation” that will see consumers and businesses delaying spending amid expectations that prices will fall further still.
Despite the optimism being expressed by politicians and the hype that investment banks would have savers and consumers believe, a sustained recovery has yet to take hold in the Eurozone, with growth slowing to a mere 0.2 percent in the first quarter of 2014, down from 0.4 percent in the final quarter of 2013.
"action needed to reverse downslide into ‘lowflation’"
While economic indicators appear, broadly speaking, to suggest that underlying factors continue to move in the right direction, especially in terms of labour market statistics, nobody should think that there is recovery juggernaut in play, because analysts and economists have actually been trying to have their alarm bells heard for some nine months now.
It became apparent as early as last summer that producer price deflation in China among other places was more than a response to continued over-supply and sluggish domestic demand (in the case of China).
That deflation was being immediately exported to Europe (and elsewhere) and there were calls for the ECB to fend off the risks of deflation as long ago as August 2013.
However, as is so often the case with “inconvenient truths”, those calls went unheeded by a European political elite that has been desperate to paint the pavements gold in advance of electoral judgements that would see them being forced to take responsibility for years or even decades of inaction and lack of foresight.
Fast forward to May 2014 and those votes have not gone in the way that the established generation of political leaders would have hoped and we are now faced, in the case of the European Parliament, with the prospect that Europe’s levers of influence are now going to be pulled by the least economically educated generation of so-called politicians ever seen.
Just at the time when Europe needs more than ever to be able to get smart, it looks like we’re just going to get small again.
At least from our point of view the electorate in The Netherlands had the good sense to elect Wim van de Camp for another year into the Parliament, so we will continue to benefit from the realism that he has stamped on EU Parliament and Commission negotiations in matters that affect the PTW industry.
Economically, the risks faced currently will have very different manifestations to those of a ‘conventional’ recession in that we will be faced with a long-term period of economic stagnation.
The motorcycle parts and accessory aftermarket in theory would see its sales increase as, again, fewer consumers buy new machines. However, that was also the conventional wisdom as we entered recession in 2008, and we all know how that ended.
As ever, the one primary USP that the motorcycle industry can cling onto is the passion for riding two wheels and the economic, urban and environmental advantages that two-wheeled transport continues to have in its favour.
After six months in which new motorcycle sales statistics appear to have finally shown that we are starting to see genuine and sustainable growth, it is to be hoped that the impacts of a deflationary spiral can be averted and growth sustained.
