Worse

When quarantine orders were imposed mid-March, I wrote in this space that the entire year should be considered gone. The main engines of our economic growth were shut down and subsidies will have to be paid out to help poor families cope with the health emergency.

That was an underestimate.

Today, analysts are telling us it will likely take a decade to recover the global economy we had at the start of this year. In effect, humanity will have to endure a lost decade.

Instead of a V-curve that is more pleasant to think about, economists are now advising us to think in terms of an L-curve. Because of the sharpness of the drop and the scope of the economic retreat, they expect a long and difficult recovery. It will likely be marked by repeated lockdowns as the epidemic resurges in waves.

That is shuddering to think about.

As in most other things, the poor will bear a disproportional share of the pain wrought by this pandemic. Famines could break out. Poverty rates will be high, along with unemployment. 

In fighting the pandemic, most governments will take out more debt. That will redirect available capital that might otherwise be used to grow investments. The sheer magnitude of public debt will invite second-generation problems for the global financial system.

The US, the most indebted country on earth, held trillions of dollars in borrowing before the pandemic broke out. In the frantic effort to “stimulate” its economy, it will need to borrow trillions more. But that does not guarantee revival.

 China’s economy contracted slightly in the first quarter of this year, the first time since sweeping economic reforms were instituted in the late seventies. The Eurozone contracted by 3.5% in the same period. The US reports a 4.8% contraction for the first three months of the year.

Even that disturbing number has to be put in even more disturbing context. The US economy was actually growing for two-and-a-half months before quarantine measures were imposed in the second half of March. The 4.8% contraction, therefore, was caused by only two weeks of restrictions on movement. The contraction that happened April and May will be staggering.

In the six weeks since the lockdown, 30 million American workers sought unemployment benefits. That overshadows the numbers for the Great Depression of 1929-1932. The number of unemployed will continue to rise and the jobs will not likely return in the immediate term, notwithstanding Donald Trump’s unwarranted wishful thinking. 

Over the last few weeks, it has become fashionable to say the US economy “cratered.” Now it seems worse than that. The US has become an economic black hole that will pull down the other economies of the world.

The chairman of the US Federal Reserve Jerome Powell is not a person prone to exaggeration or hyperventilation. As his job requires, his words are always tempered and measured. Earlier this week, however, he pronounced the US “the worst economy ever.”

Be very afraid, therefore. Over the past few days, that previously unmentionable word ­– “depression” – appears more frequently in print. 

In 2008, the Philippines was able to avert sliding into the global recession caused by the financial meltdown emanating mainly from Wall Street. We will not be as lucky this time. The depth and scope of the global recession ensures that.

Our finance officials anticipate a P1.1 trillion loss of revenue this year. No one has yet offered an estimate of economic losses arising from the “enhanced community quarantine” measures.

 Some of our most dynamic economic sectors, particularly tourism, have been badly hit. No one sees a revival of tourism until deep into the next year.

Our main dollar earners – OFW remittances, electronics and the BPO industry – will surely decline. Already, we are well into the process of repatriating distressed OFWs. The BPO companies, even if they reopen today, will deal with declining demand abroad. 

Fortunately, we had record gross international reserves amounting to $87 billion when this health emergency hit us. We have enough to cover 7.5 months of imports with those reserves – longer if we consider our oil bill will be greatly reduced.

After many years of hard work, we brought down our debt-to-GDP ratio to just 39%. As things stand, however, our finance officials estimate new borrowing will push this ratio up to 47%. The longer it takes us to restart our economy, the more we will have to borrow to help us limp along.

If it is any consolation, the Philippines ranks in the upper tier of emerging economies when it comes to the terms by which we are able to borrow and the manageability of our outstanding debt. That will not mean very much of course if our unemployment rate doubles or if poverty incidence rates spike.

With recession inevitable, our property development sector will likely slow. As the economy contracts, it is not likely there will be growing demand for office space or even residential units. 

The only bright spot in a bleak economic landscape is the Build, Build, Build program. Most of the major projects included here are already funded by way of cheap ODA. 

The ambitious infra program was originally intended to push our economy to high growth because of the jobs it will create and the multiplier effects of such spending on the domestic economy. Now this is our best bet to fight longer-term contraction of the economy.

The sooner we get this sector restarted, the better off we will be in fighting the global recessionary trend.