Good news for PHL: No "double dip" in (in the USA) 2012

The yuletide season is almost over. As tradition suggests, it shall start on December 24 and ends on January 6 the following year. Historically, it was celebrated as a winter festival by the “Germanic people” as a “pagan religious festival”. Through the years, however, it has evolved and is largely likened with the Christians’ celebration of Christmas. In fact, today, we have synonymously called the “Christmas season” - the “yuletide season”.

The celebrations-then and now-may have differed a lot considering the religious belief of these two distinctively different groups of believers. Regardless, however, of the contrasting rituals that come along with their beliefs’ peculiarities, these celebrations have one thing in common. In both occasions, they are both on buying sprees and relish on mouth-watering dishes with reckless abandon. In other words, they simply spend and enjoy.

Today, this scenario is repeated all over the world. In fact, in the USA, a surge in retail sales was very impressive. So encouraging that majority of the economists believed that the positive performance in the last quarter of 2011 will be sustained until the whole year of 2012. Thus, in unison, they unequivocally asserted, that there will be no “double dip” recession happening this year in the USA.

It is a known fact that the US Gross Domestic Product (GDP) is 70% consumer spending driven. Therefore, should consumers curtail spending, the US economy contracts. In simple terms, if Americans stop buying, the world loses the money of the widely known habitual big spenders.

Indeed, this is a bit of good news. To recall, at the middle of last year, the decrease in US consumer spending was noted. Such decrease in consumer spending was not hearsay. Statistics showed that US consumer confidence fell to a nearly 2-1/2 year low in early July, 2011. Making matters worst is the fact that after a decline in unemployment in the first quarter, it rose again in the second quarter of 2011.

Had this sad development (Americans’ frugality) sustained, all export-driven economies (especially those that are dependent on US consumer spending) will surely be vulnerable. Precariously, the Philippines, will most likely take the worst beating.

To understand the situation better of how this drop in demand might have hit the rest of the world, particularly, Asia, Mr. Prior-Wandesforde (an economist with Credit Suisse in Singapore) examined how countries in the region fared when trade collapsed following Lehman Brothers’ 2008 bankruptcy. “Taiwan suffered the biggest blow, with exports dropping 24% during the worst phase of the 2008-2009 global recession. Singapore and Hong Kong are exporting giants, so they also rank high on the risk list. Exports amounted to 178% of Singapore’s GDP in 2010, and 169% of Hong Kong’s. Malaysia may also suffer: exports were 89% of its GDP.”

On the other hand Goldman Sachs economist Michael Buchanan said “Taiwan and Korea may be in a better position because they concentrate on high-tech goods such as smart-phones that would still be in demand even if US growth falters”. He further argued, however, that “Singapore, the Philippines and Malaysia looked more vulnerable because they ship a lot of relatively lower value-added electronics”.

In this unpleasant development, only China can take things in stride. Though its exports to the United States are worth more than twice as much as those of the sum of Taiwan, Singapore, Malaysia, Hong Kong and Korea, its risk is relatively negligible. One of the contentions is China’s sheer size. Its export exposure to the US amounts to a relatively negligible 4.9% of GDP. Any drop in US demand, therefore, would inflict very limited damage to its (China) economy.

The US successfully avoiding “double dip” is, indeed, a bit of good news for the entire globe. Coupled with a constant increase in consumer spending, these will certainly be the right prescription for the sagging global economy.

The laymen are just wondering, however, what this “tasty ice cream promo-sounding” phrase is all about.   A “double dip” recession or a “W-shaped” recession happens when the economy, in a recession, emerges from it with a short span of growth but quickly falls into another recession. It happened in the United States in the early 1980s. Recession pervaded from January 1980 to July 1980. Its economy shrank at an annual rate of 8 percent from April to June of 1980. Then, the economy experienced a quick period of growth when in the first three months of 1981 the economy grew at an annual rate of 8.4%. Unfortunately, as the Federal Reserve raised interest rates to fight inflation, the economy dipped back into recession from July 1981 to November 1982, thus, the “double dip”. 

Though US economists are upbeat on their economy next year, the current global economic situation shouldn’t be taken lightly. Today, in fact, we should be doubly apprehensive as the world’s economy is not getting any better. Yes, despite the Americans’ increase in consumer spending, their country’s debt remains a big concern. The economies of Ireland, Greece and Portugal are in shambles and Spain declared they are into another recession next quarter. Therefore, there is not much to expect from Europe. Japan (the world’s third largest economy) is still in the midst of that debilitating earthquake and tsunami, therefore, it should be counted out for awhile. Worst, while the Middle East should have been the saving grace economically, political instability is recently creeping in and is slowly crippling these countries down.

 Though, we can set aside these disturbing developments as purely obtaining in these countries and are purely theirs, the fact still remains that the entire globe (including the Philippines) is dependent on their economies. As one of the world’s biggest exporters of labor, we can be badly hit too. Worst, as these countries are some of the nation’s major fund providers, foreign investment may just stop pouring in. Therefore, it will just be as disturbing for us, a negligible group of islands in the pacific. 

Therefore, we simply have to hope that the USA will be able to avoid “double dip” recession successfully as predicted and their consumer spending will slowly climb back to its usual strength. Otherwise, the Philippines will take the worst beating. As mentioned earlier, Asian countries like, Singapore, Taiwan, Hong Kong and Malaysia will be badly hit should US demand continue to slide. Consequently, therefore, these countries will resort to production cuts. When that happens, they will surely shutdown some of their factories. As a result, they shall terminate production workers. When they cut their labor force, their countries’ foreign workers will certainly go first. Most likely, majority of them are Filipinos. 

More likely, therefore, dollar remittances will be severely affected. Needless to say, our very own consumer spending will be largely affected as well. Our local manufacturers, though just selling domestically, will likewise be badly hit and might just consider factory shutdowns too. 

Indeed, indications of a steady recovery rest in the performance of the private sector. When consumers’ demand rise and new investments start pouring in, then, truly, we can say a genuine road to a steady recovery is paved. Otherwise, the world’s bigger economies may still be in limbo.   Hopefully, however, the US economists aren’t wrong.

For your comments and suggestions, please email to [email protected].