Can the Philippines weather a US and global slowdown?

For months, this has been a constant topic in newspapers, television, radio, blogs and countless shop talks all over town. Can the Philippines weather a US and even a global slowdown?

Most of the points raised are confusing, and some arguments merely skim over the surface. You have the government PR machinery churning out every possible angle to make things look totally rosy. On the other side, you have certain business groups who use the media as their virtual “shout out” mechanisms for alarmist statements designed to push the government to protect them from the effects of a recession in the US and in the rest of the world as a whole. Oh puhleease.

I listen most to economists and selected businessmen to get a balanced view. Let me qualify that – I listen most to economists who let the figures tell the story. It’s easy to dish out opinion and gut feel. But I can still hear Raul Locsin, one of the best business journalists in this country, saying “Let the figures tell the story. Let the figures tell the story!”

Economists may have a handle over figures, but businessmen are the ones who have razor sharp eyes from slugging it out every day in the world of business. There are times businessmen see trends that economists don’t. Sometimes, the opposite happens.

But first, some statements that I totally ignore. Malacañang spokesperson Ignacio Bunye has the most unenviable job of always having to tow the government line. Because he seems to ignore the need to talk about negatives at all costs, he sounds like…uhh…like he’s always lying.

In this article, he had some spiffy figures to prove the Philippines could weather a recession in the US.

“It is important to note that from a high of 28 percent seven years ago, the share of US demand to total export income of the Philippines has shrunk to less than 20 percent as our exporters have diversified their markets,” Bunye said in a statement.

Who can argue with figures? But he unfortunately ignored the need to discuss how many overseas Filipino workers in the US and North America would be affected by a recession and what that figure means for the local economy.

Finance Secretary Margarito Teves, I hate to say it, almost sings the same tune.

While a possible slowdown or recession in the US economy could dampen the growth of emerging markets, the Philippines will likely withstand the adverse effects of such a development largely because of its improving economic fundamentals,” Teves said.

On the opposite end of the spectrum is real estate consultant CB Richard Ellis with its aggressive and bullish statements. This story also came out in CNN.com.

A looming recession in the United States is expected to boost the Philippines’ booming property market and its outsourcing industries, real estate consultants CB Richard Ellis (NYSE:CBG) said Thursday. ‘We see no end for the demand for commercial real estate,’ CB Richard Ellis Philippines chairman Rick Santos told a news conference. ‘We haven’t seen this much interest since pre-1997 (before the Asian crisis),’ he said.

The statement made for catchy news, but if you look closer it sounded self-serving for a company that has purchased quite a lot of properties in the Philippines, especially commercial real estate. IBON research also came out with a bold statement that call centers will suffer most from a recession in the US.

But even economists, with all their analyses and numbers, don’t agree with each other. The Philippine Daily Inquirer the other day quoted Citibank’s Philippine-based economist Jun Trinidad saying the Philippines will in fact grow 6.5 percent in 2008, not bad even after a 7.4 percent gross domestic product expansion last year.

HSBC’s Fred Neumann also believed the Philippines is not in any danger of being dragged under by a slowdown in the US economy. The last time he spoke with members of the media a few weeks ago, he was not even using the “R” word.

Yet the Asian Development Bank said just now that Asia is not immune from the crisis.

“A significant slowdown in the US economy will most certainly affect the region’s growth performance through trade, investment and financial linkages,” said ADB chief Haruhiko Kuroda.

In the blogosphere, some interesting thoughts came from David Llorito, who wrote in A World Without Borders that globalization and continued growth in the Asia Pacific region will insulate the Philippines from the effects of a US recession

Tony Lopez of Business News Asia however agrees with experts who say the US will go into a deep and long recession, and the whole world, not just the Philippines, will get hurt.

The United States accounts for a fifth of global production. It is the world’s single largest consumer market which spends more than what the consumers of China and India combined spend. Morgan Stanley Asia Chairman Stephen Roach estimates US yearly consumer spending at $9.5 trillion, China $1 trillion, and India $650 million.

The US also buys 30 percent of total world exports. Since China is now one of the world’s biggest exporters, then it will certainly be hurt by a US slowdown. Since much on Asia now depends on China, then the rest of Asia, including the Philippines, will certainly suffer. How bad we will suffer is not clear. Should the US stumble, Roach warns, the world would face “the mother of all recessions”.

As a result of the US subprime mortgage crisis, banks have become more strict with their lending, even to blue chip companies. If large corporations have difficulty borrowing money they will have difficulty expanding or even sustaining existing operations. If they cut back, there will be layoffs. If there are layoffs, consumers will spend less. If consumers spend less, industries will sell less. It’s a chain.

I found Econologue’s post interesting because it quoted another interesting economist. Solita Monsod (y’all know her as Mareng Winnie) says there’s too much irrational anxiety about the “impending US recession.” I heard Winnie last Friday over the radio saying the same thing.

Benson Te over at prudent investor newsletters tried to answer the question asked by an analyst on whether emerging markets and the Philippines would be the last shoe to drop? I found his analysis interesting:

Today’s turbulent markets reflect the same improving dynamics. As earlier stated, the S & P 500 has lost 15% as of Friday’s close while the Phisix is down 16% from its peak and so with emerging markets (EEM) at 19%. If the same volatility had been applied relative to its 2004 and 2006 scale, then emerging market benchmarks and the Phisix would have caved in by about 45%!

The Newbie Trader also doesn’t think a Philippine recession is imminent, The Geeky Guide To Everything is not impressed with stimulus packages, Richard Gordon says the Philippines has newfound strengthens that will insulate it from the recession.

As you can see, this is one of those times when getting from one end of the spectrum of ideas to the other feels like walking from the west to east of SM Megamall.

That’s a clear indication to me that nobody knows the answer for sure.

Think about it. Is it really possible to know with 100 percent certainty? That meanst the average investor will have to know better than to believe everything they read and see. Some of these arguments feed uncertainty and fear, some stoke greed – all of which are guaranteed to make an investor stumble in the markets.

In the face of all the hollow arguments and alarmist statements, here are several things that investors can hold on to with certainty which market tamers have said again and again.

Markets gyrate and sometimes they do it wildly. This has happened for many, many decades and will most likely happen many times in the future. Invest or make financial decisions with an acceptance of the nature of the beast (Noet’s latest article teaches how to do this.)

Invest based on your risk appetite, not based on hope the market will be your friend. Whatever return you get may not be fantastically like Soros’ or Buffet’s, but if they meet your own targets, that’s already reason to eat a cone of ice cream and celebrate! ☺

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