We received this email yesterday from a reader based in Purono Park, Queensland, Australia:

These people better be smiling when they say things like that. They must be joking. As if we don’t have enough clowns in government. Our relatives in the Philippines are losing their jobs, so we have to send money to help them. Can’t they offer solutions instead of false reassurances? Will they please stop treating us like idiots?

He was reacting to the Philippine Daily Inquirer article “Slowdown, not recession” where cabinet officials explained that the Philippines is likely to show a slowdown in economic growth next year, and not a recession as most top businessmen who took the Makati Business Club survey believe.

Are we, or aren’t we going to have a recession? Is the government merely trying to manage expectations? Or is there reason to believe that we won’t be hit as hard as we all think we would be? What do you think?

Perception plays a big part in business and the economy, but sometimes economic-speak can be confusing. Should we spend more to avoid a recession (and therefore spur business activity), or should we save more to prepare for tough times? Forecasts as provided by economists, government crunchers and banks are taken from their economic models and gut feel. To a certain extent, their predictions also fuel perception, right?

I have collated here all the predictions and forecasts worth studying (and salient excerpts), to help you make sense of what is being said in the news:

“Slowdown, not recession”

“What you mean by economic slowdown is when your neighbor loses his job. By recession, it’s you who lose your job,” Finance Secretary Margarito Teves said, explaining the difference between a recession and a slowdown.

Also…

The DBCC now expects the economy to grow at a slower pace of 4.1-4.8 percent this year after a slowdown in exports and farm output in the first nine months. The economy is expected to grow 3.7-4.7 percent next year.

It was earlier projected that domestic growth would be within 5.5-6.4 percent this year and 6.1-7.1 percent next year.

The new targets, the government’s second revision, were aligned with external developments “that may generate a knock-on impact on our overall economic activity,” Budget Secretary Rolando Andaya said in a statement.

Top businessmen see recession in 2009

Eighty-seven percent of the businessmen polled by MBC said they believed the Philippine economy would fall into recession next year, while 60 percent said their company’s workforce “will contract.”

The MBC groups the country’s biggest conglomerates and companies, and the survey was conducted among its members’ top management.

Seventy-six percent of those surveyed agreed that obtaining bank loans would be more difficult, while 75 percent said “access to trade credits will be more difficult.”

The “most alarming concern” is an expected spike in layoffs projected toward the end of the first quarter of the year, according to the survey.

Deutsche Bank sees no recession for RP

The Philippines is not in danger of falling into a recession. In fact, it is the only country in Southeast Asia that has so far escaped the harsh impact of the global financial turmoil, European banking giant Deutsche Bank said Wednesday.

In an equity research note, the German bank said the Association of Southeast Asian Nations as a bloc was far more resilient today than during the Asian crisis of the late 1990s, when the sharp economic slowdown and unprecedented currency devaluation triggered a wave of corporate defaults that in turn soured banks’ assets.

“While the collapse in commodity prices and the anticipation of weaker exports should hurt economic growth, DB is not expecting a recession in Indonesia, Malaysia, Thailand or the Philippines,” the report said.

The article also stated:

“Financial prudence, deposit guarantees by central banks and the general lack of exuberance in the mass residential property market has left the Asean bloc in far better shape today than before the Asian crisis,” DB said.

HSBC sees Asia staying resilient

BRITISH banking giant HSBC sees developing countries in Asia in a much better position to withstand the current global financial turmoil than during the 1997-98 regional currency crisis.

While emerging Asia would slow down alongside the global downturn triggered by the US credit crunch, the region–the world’s fastest growing in the last few years–would likely remain resilient, HSBC group chief operations officer Michael Geoghegan said in an international teleconference late Monday.

He said Asia outside Japan would still sustain a respectable growth of 7 percent this year.

“If the world economy slows, Asia will be impacted, but unlike the Asian crisis, the Asian economies are strong. They have strong reserves, current account reserves and each country is capable of stimulating domestic demand,” Geoghegan said.

RP economy to grow amid recession

MANILA, Philippines — The Philippine economy will slow down due to the worldwide recession but it will still grow, with some sectors even showing surprising strength, an economist forecast Tuesday.

Victor Abola, program director of the School of Economics of the University of Asia and the Pacific, projected gross domestic product growth in 2008 at 4.5 percent with 4.0-percent growth next year.

This will be a sharp slowdown from the 7.2-percent growth posted last year but will be far better than the minimal or even negative growth projected for developed countries, Abola said.

The likely effects of the world financial crisis on the Philippines will be a decline or even withdrawal of foreign investments in the stock market.

Philippine financial institutions are not too exposed to the financial turmoil and those that have been affected have already made this public, Abola added.

“We won’t have a credit crunch as banks have plenty of money,” he forecast.

Philippine recession seen as unlikely

The Philippines may be headed for a slowdown next year, a spillover effect of the ongoing US financial crisis, but the domestic economy is far from plunging into a recession, two experts said.

University of the Philippines economist Raul Fabella and former secretary of finance Ernest Leung spoke at a forum organized by the nongovernmental organization Action for Economic Reforms.

“The Philippines will definitely feel the impact of the US crisis—lots of jobs may be lost and the country’s capacity to borrow will suffer—but I don’t think we will go into a recession,” Fabella said, noting that recession is technically defined as two consecutive quarters of year-on-year contraction of a country’s gross domestic product.

Fabella has projected that growth of the Philippine economy would slow down further to 3.5 percent next year from a projected 4.4-4.9 percent this year as the local business environment feels the adverse effects of the financial turmoil in the United States.

His growth forecast for 2009 is less optimistic than the official projection of between 4.1 and 5.1 percent set by the Arroyo administration’s economic team.

Global recession, local crisis

Broadly speaking, recession refers to the fall in economic activity. It is a phase often technically measured as two or more consecutive quarters when the growth rate of the gross domestic product (GDP)—the total production of goods and services of an economy—is negative.

Recession is the contraction phase or the “downtime” in the business cycle. Thus, it is often reflected not only in declines in industrial production and sales but also in employment and real income (or the income relative to the increase in the prices of basic commodities).

Will we import a US recession?
No Free Lunch/Cielito Habito

Before going any further, what does it mean for the US economy to go into recession? Recession has come to be commonly defined as a contraction—that is, negative growth—in a country’s economic activity for two consecutive quarters or more. “Economic activity” here is measured as gross domestic product (GDP), which also reflects incomes received in the economy. In short, then, recession implies a prolonged drop in aggregate income. This is not to be confused with an economic slowdown, which implies a lower rate of growth, but continuing (positive) growth nonetheless.

He also said:

Will the Philippine economy go into recession if the US economy does? I could most confidently say no. A slowdown is almost certain—but by saying “almost,” I would still not rule out the possibility of sustained or even accelerated growth, as I will explain later. But a downturn for us is most unlikely, and can happen only if the entire global economy is somehow led into a downturn. A lively debate is ongoing worldwide, both politically and technically motivated, about the expected repercussions of a US recession, but there appears to be no disagreement that the world economy will slow down. It is the magnitude of the impact that is widely debated, with some arguing that the contagion will be severe, while others contend that the world economies have undergone a “decoupling” (translation: cut the link or dependence) from the US economy.

I will set aside the question on the global impact, and focus here on the particular impact on the Philippine economy, and the lives of Filipinos. On this, our best basis for analysis is to look at the hard numbers.

Export prominence

How prominent is the US in our overall economic linkages, especially trade? If we count China and Hong Kong as one country (even though the trade statistics still separate the two), the US has already been dislodged as our largest export market, whose 17-percent share of our exports is now just second to China-Hong Kong’s 23 percent. Contrast this to only 10 years ago, when the US took more than one-third (35 percent), while China-Hong Kong took less than one-twentieth (5 percent). Our vulnerability to a US recession via an export slowdown is therefore far less than what it would have been 10 years ago.

But let’s look more deeply into the details, particularly the destinations of our top exports. Electronic products, which account for two-thirds of all our export earnings, are now well distributed among our top four buyers for these products, with the US taking only 14 percent. China-Hong Kong takes 23 percent, Japan takes 15 percent, Western Europe takes 14 percent, and even Singapore and Malaysia take sizable shares of about 8 percent each. On the other hand, the US takes up the bulk (79 percent) of our garments exports, our second (but a far second) largest export. Mineral exports to the US hardly matter, with most going to our neighbors. Woodcraft and furniture, another top export earner, mostly go to Japan, with only 20 percent going to the US.

JP Morgan expects RP to weather the crisis

THE PHILIPPINES HAS “SIGNIFICANT” exposure to an emerging global recession but has built up internal buffers to cushion against external shocks, American banking giant JP Morgan said.

In its latest emerging market research dated Oct. 16, JP Morgan held the view that local monetary and fiscal policymakers were well-positioned to act, if needed, to help perk up domestic output given the uncertainties in the global economy.

JP Morgan estimated that every percentage point drop in US growth would shave 0.4-0.5 percentage point from the growth in the Philippines’ gross domestic product (GDP), or the sum of all goods and services produced by the local economy in a given period.

Remittances are also directly exposed since more than 30 percent of overseas Filipino workers (OFWs) are based in the United States, the research said.

But JP Morgan noted that there had been minimal bond financing by Philippine corporations. It added that real estate and stock market prices have previously moved up but still lagged many of their regional peers, thus dismissing concerns that they were nearing “bubble” type levels.

“Bank foreign funding both as a percent of GDP and as a share of total bank liabilities is manageable and derivatives licenses had been given out prudently, so there has been no excessive activity there,” it said.

From MoneySmarts:
Prepare for the worst but hope for the best. ☺

What about you? Is it going to be a recession or a slowdown in 09?