MANILA (Reuters) - A super typhoon that devastated the central Philippines is expected to curb growth and push up inflation in the coming months, but the damage is unlikely to dent the country’s new-found status as Southeast Asia’s rising economic star.
Typhoon Haiyan, one of the strongest tropical storms on record, tore through the centre of the archipelago on Friday, killing an estimated 10,000 people in one city alone, destroying homes, roads and bridges and flattening crops.
Finance Secretary Cesar Purisima said the economic damage in the mostly agricultural region would likely shave 1 percentage point off of growth in national gross domestic product (GDP) in 2014, but added that the World Bank estimates the annual typhoon season typically drags on the country’s growth by 0.8 percent of GDP.
“Fixation over numbers at this stage is not going to be useful,” Purisima, the top finance ministry official, told reporters in Manila. “I was overwhelmed by the pictures, not the numbers.”
The Philippines, once derided as the “sick man of Asia”, notched up growth of 6.6 percent last year, second only to China in the region, and improving public finances saw its credit rating lifted this year to investment grade for the first time.
Officials in Manila have been confident that 2013 growth will exceed their 6-7 percent target, and the IMF in September estimated this year’s GDP growth at 6.75 percent.
Private-sector economists said the impact of the storm on fourth-quarter growth would be relatively modest.
That is partly because, while the affected region is home to around 20 percent of the Philippines’ population, its contribution to the national economy is smaller - only around 12.5 percent of GDP, according to Purisima.
Citi economist Jun Trinidad said in a note that netting out the contribution of the worst-hit areas from the bank’s fourth quarter GDP estimates still gave full-year growth of 6.8 percent, compared with a pre-typhoon range of 7.3-7.5 percent.
Economists at Nomura wrote: ”In terms of the typhoon’s impact of the overall economic outlook, as tragic as the event is, we think it does not change the fundamentally strong macro picture that is making the country a regional stand-out.
“Its effects on this year’s growth are likely to be short-lived, posing only a relatively small downside risk to our 2013 GDP growth forecast of 7.3 percent.”
Economists say growth usually rebounds quickly after natural disasters, due to the lift from spending on reconstruction.
The flow of remittance payments from the millions of Filipinos working overseas that are a mainstay of the economy could also increase in response to the disaster, deputy central bank governor Diwa Guinigundo said.
The overall financial cost of the destruction wreaked by Haiyan is harder to immediately assess. Initial estimates varied widely, with a report from German-based CEDIM Forensic Disaster Analysis putting the total at $8 billion to $19 billion.
Daniel Martin, at Capital Economics, pointed out in a note that looking at GDP alone can under-represent the negative impact of a disaster and overstate the recovery.
“GDP does not capture the destruction of assets but does record spending to replace them,” he said.
Farm output in the affected region, where the biggest crops are sugar cane and rice, is likely to have been devastated, which, combined with supply disruptions caused by damaged infrastructure, is likely to push up food prices and stoke inflation.
“While the economic impact will be limited, the impact on inflation is likely to be more drastic, with supply shocks pushing up headline inflation in coming months,” said HSBC economist Trinh Nguyen in a note.
We expect inflation to accelerate going into 2014, but it should remain manageable and stay within the central bank’s 3-5 percent target.” (Additional reporting by Viparat Jantraprapaweth in Bangkok; Writing by Alex Richardson; Editing by Neil Fullick)