Despite human cost of typhoon, Philippines economy on track

Reuters

By Karen Lema

MANILA, Nov 12 (Reuters) - A super typhoon that devastatedthe central Philippines is expected to curb growth and push upinflation in the coming months, but the damage is unlikely todent the country's new-found status as Southeast Asia's risingeconomic star.

Typhoon Haiyan, one of the strongest tropical storms onrecord, tore through the centre of the archipelago on Friday,killing an estimated 10,000 people in one city alone, destroyinghomes, roads and bridges and flattening crops.

Finance Secretary Cesar Purisima said the economic damage inthe mostly agricultural region would likely shave 1 percentagepoint off of growth in national gross domestic product (GDP) in2014, but added that the World Bank estimates the annual typhoonseason typically drags on the country's growth by 0.8 percent ofGDP.

"Fixation over numbers at this stage is not going to beuseful," Purisima, the top finance ministry official, toldreporters in Manila. "I was overwhelmed by the pictures, not thenumbers."

The Philippines, once derided as the "sick man of Asia",notched up growth of 6.6 percent last year, second only to Chinain the region, and improving public finances saw its creditrating lifted this year to investment grade for the first time.

Officials in Manila have been confident that 2013 growthwill exceed their 6-7 percent target, and the IMF in Septemberestimated this year's GDP growth at 6.75 percent.

Private-sector economists said the impact of the storm onfourth-quarter growth would be relatively modest.

That is partly because, while the affected region is home toaround 20 percent of the Philippines' population, itscontribution to the national economy is smaller - only around12.5 percent of GDP, according to Purisima.

Citi economist Jun Trinidad said in a note that netting outthe contribution of the worst-hit areas from the bank's fourthquarter GDP estimates still gave full-year growth of 6.8percent, compared with a pre-typhoon range of 7.3-7.5 percent.

Economists at Nomura wrote: "In terms of the typhoon'simpact of the overall economic outlook, as tragic as the eventis, we think it does not change the fundamentally strong macropicture that is making the country a regional stand-out.

"Its effects on this year's growth are likely to beshort-lived, posing only a relatively small downside risk to our2013 GDP growth forecast of 7.3 percent."

RECONSTRUCTION REBOUND

Economists say growth usually rebounds quickly after naturaldisasters, due to the lift from spending on reconstruction.

The flow of remittance payments from the millions ofFilipinos working overseas that are a mainstay of the economycould also increase in response to the disaster, deputy centralbank governor Diwa Guinigundo said.

The overall financial cost of the destruction wreaked byHaiyan is harder to immediately assess. Initial estimates variedwidely, with a report from German-based CEDIM Forensic DisasterAnalysis putting the total at $8 billion to $19 billion.

Daniel Martin, at Capital Economics, pointed out in a notethat looking at GDP alone can under-represent the negativeimpact of a disaster and overstate the recovery.

"GDP does not capture the destruction of assets but doesrecord spending to replace them," he said.

Farm output in the affected region, where the biggest cropsare sugar cane and rice, is likely to have been devastated,which, combined with supply disruptions caused by damagedinfrastructure, is likely to push up food prices and stokeinflation.

"While the economic impact will be limited, the impact oninflation is likely to be more drastic, with supply shockspushing up headline inflation in coming months," said HSBCeconomist Trinh Nguyen in a note.

We expect inflation to accelerate going into 2014, but itshould remain manageable and stay within the central bank's 3-5percent target."

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