Read this in The Manila Times digital edition.
THERE are two schools of thought based on my readings: one says not too bad, the other says it will be beyond our imagination. Which is the correct reading?
There are those who predict that the US economy will definitely face a recession. Some say starting in 2023, others with certainty in 2024. Most are saying for now, or hoping, that it would be mild to moderate. They cite significant rebounds in 2022 from the pandemic's crippling effects on the global economy from 2020-2021.
Some predict that it will exceed our worst expectations. Inflationary pressures; consequences of the Ukraine-Russia war on Europe and the world; incomplete global recovery from the pandemic; high interest rates; food and energy security imbalances; climate change impacts on human and ecological security; and China's economic and internal financial woes, point to an unfolding Category 5 disaster with social volcanoes erupting in various parts of the globe.
The UN issued a warning last month that the world is “on the edge of a recession.” A global slowdown could potentially inflict worse damage than the 2008 financial crisis and the Covid-19 shock in 2020. “All regions will be affected, but alarm bells are ringing most for developing countries, many of which are edging closer to debt default.”
'Shouting from the rooftops'
The heads of the International Monetary Fund and World Bank warned of rising global recession risk as advanced economies slow and faster inflation forces the US Federal Reserve to keep raising interest rates, adding to the debt pressures on developing nations.
The Asian Development Bank (ADB) views the US's economic growth to remain sluggish moving into 2023 due to the Fed's continued monetary tightening and weaker global demand. Other advanced economies are also decelerating substantially, raising significant recession risk next year.
Much of Europe is expected to experience negative growth in the fourth quarter of 2022. The oil sanctions on Russia, the sabotage of the Nord Stream 2 pipeline, and OPEC's production cutbacks pose an existential threat to those without heat in their homes this winter. The ECB's aggressive interest rate hikes will consequently dampen growth.
Takeshi Minami, chief economist at Norinchukin Research Institute, says that “depending on the extent of slowdown in the global economy, Japan could follow suit and you cannot rule out the possibility that it slides into recession next year.
Bloomberg reports that “bond markets around the world are no longer whispering about the possibility of recession, but shouting it loudly from the rooftops.” Its October 2022 survey of Wall Street economists points to a 60 percent probability. Bloomberg Economics puts the chance at 100 percent in the next 12 months.
Another survey by The Conference Board that polled more than 1,000 mainly professional/office workers, indicated that 41 percent believe that the US is already in recession, and will differ significantly from previous downturns. Businesses were reminded of past lessons of just how hard it can be to get lost talent back.
JP Morgan Stanley CEO Jamie Dimon, Amazon founder Jeff Bezos and Tesla's Elon Musk are equally raising the red flag. It's time to “batten down the hatches” because a “very, very serious” mix of headwinds was likely to tip both the US and global economy into recession by mid-2023 with geopolitical uncertainties compounding the problem.
What does this mean for PH?
Central bank governor Benjamin Diokno said “there would be no repeat in the Philippines of the pandemic-driven recession,” reiterating this amid warnings of possible spillover effects of a faltering economic recovery and downturns in developed markets, especially the United States.
He remains optimistic that the Philippine economy will sustain its recovery as it continues to post strong macroeconomic fundamentals, noting that the economic team has its eyes on getting back to pre-pandemic growth rate levels of 6 to 7 percent.
Diokno also cited the country's gross international reserves that can service import requirements for about 10 months, the steady inflow of overseas Filipino remittances and business process outsourcing receipts, and the rise in foreign direct investments.
My sense is that recession in the US, China and Japan — our top trading partners — will have a domino effect on the tethered economies of the developed world such as the EU that, in turn, will affect the developing world in varying degrees.
As the saying goes, “when the West catches a cold, the rest catch pneumonia.” To what extent it impacts us depends on our mix of internal and external variables. Given our culture of self before country, where outcomes always differ from original intent, will our microeconomy be able to weather the oncoming storm?
How many more businesses and households, weakened by the pandemic, will be directly affected?
Our various free trade agreements are our silver linings — Atiga, PJEPA, Pefta, RCEP. How well we cultivate those FTAs, expand our economic horizons, aggressively reinforce the economy, capably compete, manage crises and navigate uncharted territory will determine our destiny.
Those, however, require time and a whole-of-society effort. The government, for example, must put in place safety nets for the BPO sector, migrant workers, trade, tourism and investments that will likely face the same fate from reduced economic activity worldwide. National survival calls for the government, the private sector and society to rise to the occasion to:
– reduce the overall cost of doing business;
– improve the ease of doing business;
– invest in business literacy;
– maximize productivity savings;
– fund entrepreneurship;
– invest in manufacturing, agriculture, aquaculture, digital and financial technology;
– expand our service sectors; and
– develop a more digital and home-based working environment.
We've done less as a nation for so long. We're demoralized, distracted and dysfunctional. My instincts from observed history tell me we'll be hit hard. We could have done more to prepare for the bad times but it's not too late to reform, perform and transform for business recovery.
This is the right time to pivot in the direction of a better Philippines by being better Filipinos. Kaya ba natin ito?
