Deeper

The numbers just get more discouraging by the day. The main reason for that is the pandemic is proving more persistent than we earlier expected.

South Korea has officially declared a second wave of infections going on. Several parts of Beijing are now on lockdown because of an outbreak in infections. Germany, which handled the first onslaught of the pandemic rather well, had to put a city on lockdown after new infections broke out.

We know from the lessons of Singapore that complacency can bring a very high price. After appearing to have staved off the pandemic early on, a second outbreak in cramped dormitories used by migrant workers produced thousands of new infections.

In the US, infections began rising in 23 states. Most of them in the southern and western parts of the country that dared relax restrictions too early than what health officials held advisable.

The rising cases in the southern states, bailiwick of Donald Trump’s Republican party, will likely be abetted by an indoor rally held in Tulsa, Oklahoma over the weekend and another in Phoenix, Arizona the other day. Trump has a strange reelection strategy involving exposing his own voters to very obvious health risks.

In our case, an outbreak of infections in Cebu City and environs threaten to cancel out the gains made in three months of quarantining Luzon. The national epicenter for infections has moved south.

What happens if a second wave of infections, exceeding the severity of the first one, happens here? Will we have enough resources left to cope?

The last three months of fighting this pandemic has been quite costly. Government spent tens of billions to support our health care system and purchase the tests necessary for tracking the infections. Emergency subsidies were doled out to 18 million poor families to keep them afloat while the economy was on lockdown.

Combine the unexpected surge in spending with the expected downturn in revenue collections and the result will be a yawning deficit. That deficit can only be financed through additional borrowing. As things stand, the deficit could run to as high as 10 percent of GDP.

Considering that many of our enterprises were battered by the economic downturn produced by the pandemic, revenues will not be as robust as they were at the start of the year. The emergency borrowing will add to our debt load and hamper our ability to make economic investments in the coming period.

Finance Secretary Carlos Dominguez has been a consistent voice of prudence the past weeks. He warned our lawmakers an ambitious “stimulus” package might be “unfundable.” He insists on “keeping our powder dry” in the event we might have to fight the public health battle all over again should a second wave of infections happen.

There is merit in keeping ourselves on war footing against this virus. Any lapse in vigilance could be truly disastrous.

Recession

The International Monetary Fund forecasts the global recession could be deeper and longer than earlier anticipated. All economies should begin preparing for a longer grind.

The World Trade Organization estimates that global trade shrunk by 18.5 percent in the second quarter. This is the steepest drop in trade numbers ever. Less trade means that economies attempting to hold the line against a recession will have a more difficult job.

Worsening global economic numbers will weigh on our own efforts to pull out of our own recession and return to the path of growth. We may have strong fundamentals. But we need to pull up our economy in a hostile global environment.

When the whole global economy is shrinking, the stage is set for other unwelcome surprises. We know that many large companies in the mature economies have gone bankrupt. That could have a domino effect down their supply chains, resulting in more bankruptcies.

Many more companies will default on their debts. When that happens, the global financial system will be shaky. We saw from the global financial crisis of 2008 how banks and investments houses are vulnerable to a contagion that begins with a few defaults.

We saw over the past few days how jumpy our banking system is at the moment. When an external audit on a large German payments company revealed over $2 billion unaccounted for, two Philippine banks were linked to this scandal. The two banks quickly denied any significant involvement in the payments company.

To our relief, intense auditing showed the “missing” money probably never existed. The German company window-dressed its own profitability by overstating its receipts.

This episode, however, should not lead to complacency. Our own companies could default on their debts and our banks are taking measures to reinforce their ability to deal with an expected spike in non-performing loans.

It is hard to confidently make estimates if the biggest factor in any equation ­– the pandemic – is a wild card. Top US epidemiologist Anthony Fauci told the US Congress the other day that this particular coronavirus behaves in many strange ways, in many instances causing permanent damage to infected persons even if they survive.

The WHO declared a pandemic has entered into a new and more dangerous phase, as infections run rampant in the US, Brazil and Mexico. By the last count, we now have well over 9.2 million COVID-19 cases globally.

In our own case, the DOH reported a record 1,150 new cases last Tuesday. That is not comforting.

We need to muster as much prudence as we can to prepare for a long and hard battle against the virus and its destructive consequences.