Global recession is coming

MARC FABER holds a doctorate in economics and has been forecasting and trading the global markets since the 1970s. Beginning in 1973, he has been based in Asia – first Hong Kong and now living in Chiangmai, Thailand, a city well known by foreign expats for an incredible German microbrewery and very numerous “hostess bars.”

In 2008 Faber talked about the US government’s attempt to stimulate its economy.

Faber: “The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline, it goes to the Arabs. If we buy a computer, it will go to India. If we purchase fruit and vegetables, it will go to Mexico, Honduras and Guatemala. If we purchase a good car, it will go to Germany. If we purchase useless crap, it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US.”

That paragraph summarizes globalization in general and how the major economies, in particular, are totally intertwined and dependent on each other and not necessarily for the good.

In May 2012 Faber predicted that there was a 50-percent chance that the world would go into economic recession, recession generally defined as two consecutive quarters of negative gross domestic product growth.

Last week Faber revised his forecast to a 100-percent chance of a recession. From CNBC and Bloomberg: “Europe is already in recession. The US economy has decelerated and I don’t see much growth in the next six to 12 months. China’s economy will slow considerably.”

Here is the “money” quote as far as PHL is concerned. “When you look at the major economies, Europe, the US, China and the emerging markets that are dependent on China for growth, Faber, only sees weakness.”

The Philippines may be an emerging economy but it is not dependent on China or the others, for that matter.

Major drivers for the Philippine economy are agricultural, overseas remittances and the outsourcing business. Eventually, tourism and mining will join the list. Tourism will come when the tens of billions of pesos worth of committed projects are completed. Mining will come when the government decides that tens of billions of dollars of foreign investment is important to the economy.

Agriculture has always been a “government project,” poorly managed with meager success. But over the last years, the private sector is slowly beginning to enter this industry with money and expertise.

Manila Bulletin: “A 1,000-hectare hybrid-rice plantation will be established by a tie-up of Metro Pacific Investment Corp. and SL Agritech Corp. in a long-term aim to help Philippines achieve self-sufficiency in the rice sector. A preliminary investment of $10 million is eyed by MPIC.”

Even the problems with recent banana exports to China are not stopping local investment. From Business World: “AgriNurture’s subsidiary Best Choice Harvest, has already finalized the acquisition of more than 100 hectares of banana plantations in Davao.”

Projects like this are a first important step. But the critical point is PHL agriculture is not dependent on the global economies growing.

Domestic consumption is strong. BusinessMirror: SM Prime Holdings Inc., the biggest PHL retail developer, plans to build four to five malls a year in the country.” While some of that consumption is remittance fueled, there is no indication that remittances are going to be a problem. From the Daily Inquirer: “Remittances from overseas Filipinos posted a new monthly record high of $1.8 billion in June,” up 5 percent in 2012 over last year.

Outsourcing to PHL like our overseas workers cannot be easily, quickly, or cheaply replaced. Further, PHL workers here or abroad are vital to the Western economies. The largest BPO company here has over 20,000 employees. It would take many months to replace them in another country and in the meantime, the work would still go on.

The global recession is coming soon, but not to these shores. –JOHN MANGUN / OUTSIDE THE BOX