The good news is that the bad news is not true
IRST, the bad news.
On Nov. 18, 2022, The Economist ran an interesting article “Why a Global Recession is Inevitable in 2023.” Editor-in-Chief Zanny Minton Beddoes wrote in part, “The editors of the Collins English Dictionary have declared ‘permacrisis’ to be their word of the year for 2022. Defined as an ‘an extended period of instability and insecurity,’ it is an ugly portmanteau that accurately encapsulates today’s world as 2023 dawns. Vladimir Putin’s invasion of Ukraine has led to the biggest land war in Europe since 1945, the most serious risk of nuclear escalation since the Cuban missile crisis and the most far-reaching sanctions regime since the 1930s. Soaring food and energy costs have fueled the highest rates of inflation since the 1980s in many countries and the biggest macroeconomic challenge in the modern era of central banking. Assumptions that have held for decades — that borders should be inviolable, nuclear weapons won’t be used, inflation will be low and the lights in rich countries will stay on — have all been simultaneously shaken.”
On Jan. 10, 2023, Ayhan Kose, director of the World Bank’s Prospects Group, was interviewed at the program “Expert Answers.” In summary, Kose warned that “Global growth is slowing sharply in 2023, according to the latest analysis from the World Bank Group. Their economists are warning that the downturn would be widespread and any adverse developments risk pushing the global economy into recession. Slowing growth affects 95 percent of advanced economies and nearly 70 percent of emerging markets and developing economies — with the potential for increasing poverty rates in some regions.”
Other pundits and economists also made predictions of dire consequences of the Russia-Ukraine conflict that had caused a major disruption in the global supply chain. The confluence of recent global events spawned fears of a global recession. Amid the gloom, the rest of the world welcomed 2023 with a mixture of hope and despair.
Now, the good news
On Jan. 30, 2023, David Lynch wrote in The Washington Post, “The outlook for the global economy in recent weeks has unexpectedly brightened, with the United States, Europe, and China all outperforming expectations and avoiding, at least for now, some predicted stumbles. American employers continue to hire at a steady clip, while the latest European manufacturing gauges signal expansion, and Chinese consumers are spending again.”
Lynch clarified, “Much of the improvement in the world’s three main economic engines, however, is more the result of disasters averted rather than any new boom.
“In the US, while Boeing and Chipotle plan to hire thousands of new workers, some techie companies are poised to have massive layoffs, if they haven’t done that yet. The International Monetary Fund (IMF) projects “the US economy to be barely expanding, with prices cooling, and the jobless rate peaking at 5.2 percent, up from today’s 3.5 percent.”
Despite this, Pierre-Olivier Gourinchas, IMF’s chief economist said, “The outlook is less gloomy than in our October forecast. We are not seeing a global recession right now.”
The latest IMF forecast now expects a global growth of 2.9 percent in 2023, slower than last year’s growth rate. Inflation is expected to drop to 6.6 percent in 2023, from the 2022 global average of 8.8 percent.
In October 2022, the IMF predicted that “one-third of all countries would sink into recession by the end of this year, though some notable economies will disappoint.” The IMF’s outlook has recently changed on account of some developments in the major economic engines.
Following are some reasons for optimism.
In 2023, high inflation rates will likely be controlled. “The US, England and Europe will likely fight inflation by raising interest rates. The US will likely lift its benchmark lending rate by a quarter point, while England and Europe will likely move by a half-point.”
There is growing optimism among business executives. In the recent London-based investment firm Oxford Economics’ survey, “almost 50 percent of business executives have become more optimistic over the past month, roughly twice the share describing themselves as more downbeat.”
Oxford further said, “Worries over a serious energy crisis in Europe, which is weaning itself from a dependence on Russian natural gas supplies, have eased, according to the survey of companies that collectively employ about 6 million people and have revenue of $2 trillion.”
Lynch observes, “China’s sudden reopening, after nearly three years of draconian Covid restrictions, also has jolted global fortunes. While the revival of consumer and business activity there will take time, early signs are positive.”
Implications
The Philippine economy is mostly domestic consumption-based, but global developments affect our economy. The economic engines of the world are manufacturers and exporters. We import most anything, including inflation. We increase our gross domestic product (GDP) when we import commodities or rehabilitate infrastructure damaged by typhoons, but importation and repairs do not bring in dollars — exports do. The more we import, the more we must generate dollars, or buy them.
As reported by global institutions, the global economy will likely do slightly better than last year, despite gloomy predictions toward the end of 2022 and in early 2023. The reason for the optimism is not because there will be increased economic activity due to higher investment levels, or a boom — but because expected temporary remedial measures will arrest the downturn that is caused by the same old problems that the world leaders have not resolved by 2022. As we welcome 2023, environmental degradation, inequitable distribution of wealth, food scarcity that is causing famine in some countries, poverty, joblessness, jobs-skills mismatch, ill effects of climate change and faster increase in population, still challenge the world leaders today.
At best, IMF’s Gourinchas said, “The year ahead will still be challenging, but it could well represent the turning point, with growth bottoming out and inflation declining.”
Some of my businessmen friends are getting gung-ho about the revenge spending of the general public during the 2022 Christmas season and earlier in January 2023. One of them even believes that the pandemic is over, and so is the economic crisis. Perhaps, this is a good attitude for a businessman. But prudence dictates that we should have great fundamentals on which to base the optimism. In sports, you have to block the opponents’ shots, but you must score to win. We must shield the economy against threats, but it must grow and prosper, too.
To ensure self-sufficiency and sustainability, prosperous economies chose to strengthen their agriculture and manufacturing as a strategy. Since the onset of the current pandemic, more progressive countries shifted from globalization to hyper-localization to be more self-sufficient and sustainable. The Philippines choose importation, a typical Band Aid solution.
Former Unilever CEO Paul Polman said, “We cannot choose between economic growth and sustainability — we must have both.”