GDP seen to withstand Yolanda impact

MANILA, Philippines -The effect of Super Typhoon Yolanda on the Philippine economy will be modest, according to JP Morgan Chase Bank.

“Our 2013 gross domestic product (GDP) forecast remains unchanged at 7.1 percent, while our 2014 forecast has been raised to 5.8 percent from 5.6 percent,” Matt L Hildebrandt, economist at JP Morgan.

“And we now forecast a current account surplus of 3.1 percent of GDP this year from 3.4 percent and 2.1 percent next year from 2.5 percent,” he added.

The entire population of the Eastern Visayas, which includes Biliran, Leyte, and Samar islands, accounts for less than 4.5 percent of the country’s population and its share of economic output is even smaller at 2.2 percent of total national GDP, JP Morgan noted.

The region is mostly agricultural, with coconut being the only crop produced in enough size (11 percent of total national production) and six percent of the country’s rice. But most of the harvest had been completed prior to Typhoon Yolanda’s landfall according to the International Rice Research Institute (IRRI).

Thus, even if we assume a 50 percent drop in economic output from the third quarter, the effect on national GDP will be small.

“We thus have marked down our fourth quarter GDP forecast only modestly to 4.5 percent from 5.7 percent and we have marked up our 1Q and 2Q GDP (2014) forecasts modestly on account of reconstruction. The effect on national GDP will be small,” Hildebrandt said.

However, J. P. Morgan expects a slight upward spike in inflation to 2.9 percent from 2.7 percent, and to 3.4 percent for next year from 3.1 percent. That is well within the forecasts set by the Bangko Sentral ng Pilipinas (BSP) of the official four- to 4.1-percent target range.

The government does not expect to issue more debt to fund reconstruction.

“This is not surprising since once again, the government is running behind on its spending plan for the year,” the report said.

Through September, the fiscal deficit was only P101.2 billion compared to a full-year target of P241 billion. Government spending does tend to increase in the last quarter of the year, but there is plenty of fiscal space for reconstruction spending, J.P. Morgan said.