Troubled

The official numbers are still about a couple of weeks away. But we already know what they are: our economy is in a recession.

Technically, an economy is defined as being in recession if it incurs two consecutive quarters of negative growth. We are sure we are in that. The only thing up for guessing is how bad it might be.

The whole world is in recession. The collective debt compared to global GDP is at its highest since the Second World War. In the first semester, government’s revenue collections fell by 16 percent, forcing new borrowing.

Until our economy contracted in the first quarter, we had over two decades of continuous expansion. Asian Financial Crisis of 1997 caused our last recession.

The sharp depreciation of the peso that happened then caught many of our companies in a lurch. Those who had borrowed heavily in foreign currencies were thrown into the abyss. They found themselves earning in pesos and paying down dollar debts.

We managed to avoid the 2008 recession through adept government policy. But the current global recession is just too broad and too deep for us to avert.

One good thing going for us is the peso holding steady in the face of an onslaught of negative economic news. The size of our gross international reserves assures currency stability.

But it will still be a rough road ahead for many of our companies.

For instance, government regulators agreed this week to extend the deadline for Dito Telecommunity’s rollout. The company had agreed to a stiff deadline for rolling out its services as the third major telecoms provider – with all the huge penalties imposed for failing to meet the agreed schedules. The original rollout was supposed to happen this month.

Months of lockdown understandably prevented the new telecoms player from building the infra needed to roll out services. The extension of the deadline provides relief but not reassurance.

A major investor in Dito, Dennis Uy’s Chelsea Logistics and Infrastructure Holdings, reported a P345 million loss in the first quarter. Last year, the holding company reported an annual net loss of P483 million due to operating losses for Dito and 2GO.

Dito’s reported P929 million loss in 2019 is not a surprise. This is the outcome of investments in a telecoms company that has yet to roll out and produce revenues. What concerns the investment community is whether the company still has enough cash to burn before it finally makes some revenue, considering its deadlines have been extended. One major investor had sold Dito shares in the open market.

The mother company, Udenna Corp., faces a challenging operating environment in 2020. The Financial Stability Coordination Council, in its first quarter report, notes the company’s large debt as a potential vulnerability. Udenna has to service P111 billion in debt in troubled times.

Uneven

The sooner more economies could return to normal activity, the more manageable the global recession will be. There are hopeful signs, but also some areas of disappointment.

China, South Korea and Japan are clawing their way back to some sort of economic normalcy. South Korea never shut down its economy and yet managed to tame the pandemic. China is most determined to get its economy going, responding to every new outbreak of infections with overwhelming actions.

The European Union – including the badly hit economies of Italy, Spain and Germany – is set to fully open up this month. Air travel is gradually restored. But since this zone was on the brink of recession even before the pandemic hit, the EU could only barely be expected to be the main engine of global recovery.

Vietnam’s response to the pandemic stands as the exemplar in Southeast Asia. The country had only a few hundred infections and zero casualties to COVID-19. It will likely be able to avoid sliding into recession. But there is very little trade between Vietnam and the rest of the region.

Thailand, although she managed the pandemic well, is an economy heavily dependent on tourism. That economic sector is likely the last to regain its footing.

Brazil and India, two populous economies, are reeling from the pandemic. Both do not have the best health care systems in the world. Brazil, now second in the number of infections and deaths to the US, could still take a turn for the worse.

The most problematic country remains to be the US. With only 4 percent of the world’s population, the US accounts for a quarter of COVID-19 cases and deaths. Infections spiked in over 30 states over the last few days. Early this week, new infections went well over 50,000 per day.

Dr. Anthony Fauci, leading expert in epidemics, said the spike could be more awesome, reaching as much as 100,000 new cases per day. This will surely be an unmanageable situation.

Already, several US states are beginning to roll back on their economic relaxation. A new round of quarantines is possible in the badly situated states – especially in Florida, Texas, California and Arizona.  Should that happen, it will foreclose any chance of American economic recovery this year.

Even worse, widespread lockdowns across the US could pull the world’s largest economy into deeper recession. That is bad news for the rest of the world. If America becomes a large cesspool of infections, any hope for mitigating the onslaught of global recession is lost.

This is the reason why a worried world is closely observing the pandemic in the US. Locked in political paralysis, it has the economic magnitude to drag all of us down.