Cash is king in 23

It was a pre-Christmas lunch with a savvy businessman and I was expecting it to start on an optimistic note. However, the first sentence from him was about a recession next year.

Are you prepared for a recession? He asked.

I have written a lot about the recession, but this guy was telling me now that it will likely happen.

So, I asked: how do you prepare for a recession?

His answer was clear: conserve cash. If you don’t need to buy a new car or go into debt for a new house or something that can wait for better times, keep your cash. Don’t celebrate beyond your means this Christmas.

Rising interest rates, weakening of currencies, mounting public debts and add to all that rising food and fuel prices are what we must deal with. Sounds like perfect economic weather to launch a wealth or investment fund!

There are too many economic and geo-political uncertainties that we are facing now. Any one of those may just cause enough trouble as we enter the new year. Time to be conservative about money matters.

When I got home, lo and behold… there were two press releases from the BSP in my inbox, one about consumer sentiment and the other about business sentiment. Both were pessimistic about Q4 2022.

That’s unusual. The holiday season usually ushers in positive sentiments from both sectors. Unless, consumers don’t have the cash to spend for the holidays and businesses know their customers will not spend like before.

Here is what the BSP survey revealed:

“The consumer sentiment in the country was more pessimistic in Q4 2022 as the overall confidence index (CI) decreased to -14.6 percent from -12.9 percent in Q3 2022…

“The sentiment across the three component indicators of consumer confidence was mixed in Q4 2022, i.e., more pessimistic for the country’s economic condition, less pessimistic for the family’s financial situation, and steady for family income.

“Similarly, consumer sentiment was also mixed across income groups, i.e., less pessimistic among the low-income group, steady among the middle-income group, and more pessimistic among the high-income group.

“The consumer sentiment on buying big-ticket items was more pessimistic in Q4 2022 as the CI declined to -74.5 percent from -72 percent in Q3 2022.”

“Consumers anticipated that interest and inflation rates may increase and the peso may depreciate against the US dollar… In particular, consumers expected the inflation rate may rise to 5.9 percent for the next 12 months, breaching the upper end of the national government’s inflation target range of two to four percent for 2022 and 2023.”

Same pessimism for the business sector. The overall confidence index (CI) declined for the second consecutive quarter to 23.9 percent from 26.1 percent in Q3 2022.

The respondents’ less optimistic sentiment in Q4 2022 was attributed to: (a) higher inflation (i.e., faster increase in prices of consumer goods and services), (b) peso depreciation, (c) decline in sales and demand, (d) rising costs of production inputs, e.g., raw materials and fuel and (e) higher interest rates.

The business outlook for the next quarter also turned less upbeat. For the next 12 months, business confidence was likewise less optimistic as the overall CI decreased for the third consecutive quarter to 46.2 percent following the previous quarter’s survey result of 57.7 percent.

The average capacity utilization of the industry and construction sectors was slightly lower. Firms expected that their financial condition and access to credit would be tighter in Q4 2022. Firms also expect a weaker peso, and higher borrowing and inflation rates in Q4 2022 and in the near term.

Further, businesses expected that inflation may breach the upper end of the national government’s two to four percent inflation target range for 2022-2023. In particular, firms were expecting that inflation may settle at 6.2 percent in Q4 2022, 6.1 percent for Q1 2023 and 5.9 percent for the next ­12 months.

Our businessman friend essentially pointed to the uncertainties in the global economic situation and asked where will we get the growth of six to seven percent that some people in government are talking about? The decline in oil prices should be good news, but it isn’t. It shows a slowing world economy that needs less oil.

This reminds me of a World Bank study released last September that predicted these troubles ahead.

The World Bank study highlights the unusually fraught circumstances under which central banks are fighting inflation today. Several historical indicators of global recessions are already flashing warnings, the World Bank observed.

“The global economy is now in its steepest slowdown following a post-recession recovery since 1970. Global consumer confidence has already suffered a much sharper decline than in the run-up to previous global recessions.

“The world’s three largest economies—the United States, China, and the euro area—have been slowing sharply. Under the circumstances, even a moderate hit to the global economy over the next year could tip it into recession,” the bank warned.

But we pointed out we had been more or less insulated from past world recessions because our economy is domestic demand driven. Our OFWs and BPOs have been reliable in bringing in the big bucks.

Unless, their host economies suffer such a downturn that their services may not be as needed. Some of them may even be sent home.

Sayang naman the Maharlika Wealth Fund whose approval was railroaded last week in the lower house only to slam into a worldwide recession. It will face riskier investment waters as it debuts.

For the rest of us hoi polloi, spend only what we can afford, do not borrow to show off and invest only what you can afford to lose. Remember cash is king in 23!

On the positive side, decreased economic activity means we may not suffer a power crisis next year. We may get a little more time to work on our worrisome supply and demand balance that should spell brownouts in a normal year.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco.