Typhoon to Hurt Philippine Growth Before ReboundKarl Lester M. Yap and Michael Heath
Philippine growth will probably be slower than initially estimated this year after Typhoon Haiyan devastated some provinces, then rebound as reconstruction provides a boost, economists said.
Gross domestic product for the full year may be as much as half a percentage point lower than a previous estimate of 7.3 percent to 7.5 percent, according to Jun Trinidad, a Manila-based economist at Citigroup Inc. GDP in the affected areas in eastern, central and western parts of the Visayas island group may decline by as much as 8 percent in 2014, Finance Secretary Cesar Purisima said yesterday.
“This poses some downside risk to growth this year, but it’s going to be relatively short lived,” said Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc. “The recovery would be quick as we go into reconstruction and could push next year’s growth a little bit higher.”
The areas account for about 12.5 percent of GDP, the government estimates, in a nation that has seen swelling investment from abroad as companies from Fujifilm Holdings Corp. to Brother Industries Ltd. are drawn to the nation’s English-speaking pool of labor. The storm may have killed as many as 10,000 people as islands were flooded and crops damaged, with almost 9.7 million Filipinos affected, according to the National Disaster Risk Reduction and Management Council.
The peso fell a further 0.2 percent to 43.65 per dollar as of 9:55 a.m. today after closing at the lowest since Sept. 17 yesterday. The benchmark Philippine Stock Exchange Index rose 0.4 percent today after its steepest drop in six weeks yesterday.
Growth in the Philippine economy, one of the most at risk globally from natural hazards according to risk-research company Maplecroft, has topped 7 percent for four consecutive quarters. Typhoons probably shave as much as 1 percent off the nation’s GDP annually, Purisima said. Haiyan’s strength means the cost this time will probably be a multiple of that, according to at least one estimate.
Losses will be $12 billion to $15 billion, or about 5 percent of economic output, according to Charles Watson, director of research and development at Kinetic Analysis Corp., a disaster-modeling firm. “A $12 billion storm is not really that bad here in the U.S.,” Watson wrote in an e-mail yesterday. “For the Philippine islands, it is catastrophic.”
Inflation may spike in November, even as average price gains for the full year are expected to be close to the lower end of the target of 3 percent to 5 percent, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said on ABS-CBN News Channel yesterday. The nation will be able to achieve this year’s growth target of 6 percent to 7 percent, he said in a separate interview on CNBC Television.
“The pace of reconstruction, more than the size of fiscal spending, would be crucial to recovery efforts while cushioning the economic drag from the natural disaster,” Trinidad said in a research note yesterday. “The typhoon shock and the devastation wrought to Eastern Visayas only reinforce BSP’s accommodation and pro-growth bias in the near-term.”
The central bank last month held its interest rate at a record-low 3.5 percent for an eighth meeting. The nation has monetary and fiscal policy space to quickly respond to any impact on inflation and growth from the typhoon, central bank Governor Amando Tetangco said Nov. 10, while Guinigundo told ABS-CBN rates will not show “upward adjustment.”
“If we are to gauge from past experience, natural disasters tend to have a one-off, non-persisting impact on inflation, as supply normalizes soon after the occurrence,” Tetangco said. “Reconstruction also tended to help improve GDP growth numbers as this provides economic stimulus.”
Haiyan’s total economic impact may reach $14 billion, about $2 billion of which will be insured, according to a report by Jonathan Adams, a senior analyst at Bloomberg Industries, citing Kinetic Analysis Corp. The government is prepared to use 23 billion pesos ($528 million) from various agencies and the president’s discretionary fund to help with reconstruction and relief, President Benigno Aquino said on Nov. 9.
The areas hit hardest are not the core manufacturing or services zones and the impact “will not be too huge,” said Jeff Ng, an economist at Standard Chartered Plc in Singapore. Third-quarter GDP data is scheduled to be released Nov. 28.
“GDP impact could be small because the affected areas make up a small portion of overall GDP,” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG, adding that he is maintaining his growth forecast for the Philippines this year at 7.2 percent.