Shallower

The IMF had adjusted its 2020 growth projections for the global economy. From the original projection of a 5.2 percent contraction, the multilateral agency adjusted this to a contraction of 4.4 percent.

China’s surprising expansion is the main reason for the adjustment in global economic outlook. With its decisive response to the pandemic, the world’s second largest economy is expected to eke out some growth this year. This despite the widespread disruption of supply chains and reduction in trade volumes brought about by the lockdowns.

Although the global recession is now seen as shallower than the earlier worst-case projections, economic recovery will likely be slower. The global economy suffered about $28 trillion in lost output because of the pandemic. That translates into millions of jobs lost and millions pushed below the poverty line.

The adjusted projections as of the third quarter of this year may have to be adjusted again subject to the severity of the expected second wave of infection coming with the cooler weather in the northern hemisphere. Infections are rising once again across most of Europe and North America.

Among the worst hit countries are: Spain at -12.8 percent, Italy at -10.6 percent, France and the UK at -9.8 percent and Canada at -7.1 percent. Japan’s economy is expected to contract by -5.3 percent. The US will contract by  -4.3 percent. The Philippine economy is forecast to turn in negative growth at over -8 percent.

China is the only major economy posting any growth. By yearend, the Chinese economy is expected to grow by 1.9 percent. That is much lower than the spectacular growth numbers the country posted during the past three decades. But it is still remarkable considering the pandemic’s shock to the global economy.

The dimensions of the current global recession have been compared to the Great Depression of 1929-1933. For the first time since 1998, the world will see a rise in extreme poverty.

The Philippines now has the worst economic performance among its peers in the ASEAN.

In the region, only Vietnam is on its way to posting positive growth at 1.6 percent. The country responded to the pandemic early and decisively. Because of that, her economy suffered only minimal disruption.

Indonesia, with a caseload and casualties second only to the Philippines, is expected to contract by only -1.5 percent. Thailand’s tourism-dependent economy is expected to contract by -7.1 percent, owing to its strong agriculture. Malaysia’s economy is expected to contract by -6 percent.

Because of the depth of the Philippine economy’s recession, analysts are expecting a longer recovery period. We return to 2019 levels only after several years.

This is disappointing obviously. Before the pandemic hit us, we were aspiring for 7 percent growth this year. That would have enabled us to bring down poverty incidence to just 14.5 percent as President Duterte promised at the start of his term. We are not going to make that goal.

There will be even longer lasting effects brought about by the heavy borrowing most governments have resorted to the past few months.

Many mature economies, including the US, now hold debts larger than their economies. The debts were incurred to meet the medical crisis as well as to save domestic enterprises. Most of the world’s economies are not assembling stimulus packages to restart their respective economies.

The only reason interest rates have not risen despite the global borrowing frenzy is that savings have also risen. That is itself a disturbing signal: if consumers are not spending, there is little incentive for manufacturers to expand capacity.

All the borrowing that has been happening the past few months means there will be less money available for investments. This, in turn, means that nearly all of the world’s economies will enter into a long episode of little or no growth. All the world’s economies could begin to replicate Japan’s economy that has been stagnant for over three decades now.

Many analysts are projecting 2021 Philippine growth at about 7 percent. Our economic managers have a more aggressive 9 percent growth projection. But these seemingly high growth numbers will be due to the base effects of this year’s depleted economic performance.

As we try to climb out of pandemic-induced recession, everyone is hoping no second-generation problems arise due to the economic stress.

Should there be a rash of bankruptcies, for instance, the world’s banking system will be put under great stress. Recall the subprime financial crisis of 2008. That happened because tens of thousands of mortgages defaulted.

Today, very large borrowers could teeter on the brink of default. The most prominent among these would be the giant airline companies hit by the massive drop in air travel. Many airline companies, including ours, are asking their governments for bailout packages. Bailouts will, in turn, add to the public debt.

It is not easy to draw a more optimistic scenario for the global economy and for our own.

In our case, the economic managers are pinning much hope on the strong and early restart of the infrastructure program to restore the economy to the path of growth. Investments in infrastructure have the best multiplier effects for the domestic economy. They create jobs immediately and spur related businesses.

Apart from our two airline companies, none of our large companies appear to be on the brink. But many of our small and medium enterprises are distressed. These enterprises account for the bulk of employment.

If we could quickly open up the economy, that will help revive our small businesses. But it is the virus, not government, that will dictate how early and how much we can restart domestic economic activity.