There will be a hard learning curve this year and it is not the presidential candidates’ fault that they are unprepared for the issues the new administration will face after Inauguration Day 2022.
Let me summarize some of the ideas. China Covid: the epicenter of the quarantine is Shanghai but about 373 million people in 45 cities are in some sort of lockdown. Their economy is not moving, and the world is affected.
That much of the clothes, electronics, and cooking utensils we buy comes from China means a factory in Guangdong that is suddenly “Covid closed” hits the world hard. Twenty percent of all ocean-going container vessels are waiting to load or unload outside of a congested seaport and one-third of them are sitting in Chinese waters.
Bank of America just lowered its 2022 China gross domestic product growth forecast from 4.8 percent to 4.2 percent, with Nomura Holdings Inc. cutting its forecast to 3.9 percent. The International Monetary Fund revised down its estimate to 4.4 percent. But this is the real kicker. The IMF has cut its global GDP growth forecast to 3.6 percent in both 2022 and 2023.
China’s GDP growth has been in a downtrend since 2010 and needs five percent just to keep its economic head above water. And the world needs 4.1 percent.
There is a global fertilizer crisis that has been building for some time and has been exacerbated by the Ukraine war. Some fertilizer prices have more than doubled in 12 months. Farmers will then decrease use to save money, which decreases crop yield driving prices higher. In July 2020, corn traded at $320; today it sells for nearly $800, the highest price in the 21st century.
An outbreak of “Highly Pathogenic Avian Influenza” (bird flu) in chicken and turkey flocks has spread across 24 US states since February. It’s global. “Quebec duck farm says it has to kill 150,000 birds, lay off 300 staff.” “Paris, March 31 (Reuters)—France is facing its worst bird flu crisis in history with cullings topping more than 12 million birds.”
China is serious about food security, as it wants to avoid a billion hungry people taking to the streets. Nikkei Asia: “Less than 20 percent of the world’s population has managed to stockpile more than half of the globe’s maize and other grains.” According to the US Department of Agriculture, China is expected to hold 69 percent of the world’s corn reserves in the first half of 2022, 60 percent of the rice and 51 percent of the wheat.
Since 2020, energy is up 130 percent with food increasing 25 percent. The best way to measure these changes is the Simon Abundance Index. This index, with 1980 as a base year, shows the relationship between population growth and the abundance of 50 basic commodities. The “abundance” is how much it costs to acquire these commodities measured in human labor time. Global resource abundance increased by 5.9 percent in 2020 but fell by 22.6 percent in 2021 moving back to 2014 levels.
Despite the recent decline, resource abundance is still increasing at a faster rate than the population is growing. That relationship is called “superabundance.”
Are we facing total gloom-and-doom? Absolutely not. So why am I pessimistic on the ability of a new government to successfully respond to “Challenges 2022?”
All the above conditions are exceptionally fluid but with a clear and growing negative trend. From a practical governance standpoint, this is like walking into the middle of a movie and trying to figure out what is going on. Government policies are made on current conditions. But conditions have changed considerably during Campaign 2022 and October last year.
Most of the campaign rhetoric is unrealistic and the promises not feasible. The Philippines will not bear the brunt of the coming economic fallout and the fall-down. But if you depend on government to adequately protect you and your family, you will be greatly disappointed.
E-mail me at mangun@gmail.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.