March 15, 2019
The El Niño currently being felt by the Philippines could halt an inflation slowdown, an ING Bank economist said, adding to the economic growth challenge caused by delays to the 2019 national budget.
In a statement on Thursday, ING Bank senior economist Nicholas Mapa forecast “more speed bumps ahead” with the weather pattern’s impact not limited to the agriculture sector — likely to be “challenged for a second year”.
“El Niño will undoubtedly hamper our agricultural production, which in itself is coming off a lackluster performance in 2018,” Mapa said, pointing to crop damage and poor fisheries harvests due to droughts.
“Meanwhile, we see the drought to also sap some momentum from our manufacturing sector, given the heavy weight of ‘food manufactures’ in the overall sector (24 percent),” he added.
“With the projected shortage of agricultural produce, we could see an episode where inflation remains within target but likely at or above the 3 percent handle given the primacy of the food basket in the overall CPI (consumer price index).”
While El Niño is primarily characterized by the lack of water, Mapa said the weather phenomenon “can induce even more virulent typhoon activity” that would be a “bane” to slowing inflation.
Inflation hit a nine-year high of 6.7 percent in September and October last year but has since returned to the 2.0-4.0 percent target range, easing to 3.8 percent last month. Rising oil prices and food supply shocks, particularly with respect to rice, have been blamed for last year’s surge.
The ING economist said the implementation of the rice tarrification law, which liberalized the entry of imported rice, would mitigate the impact of El Niño “to some extent”.
“[However] the damage to domestic rice production will be felt in lower incomes for farmers in this sector as well as on fruits, vegetables and meat products,” he added.
“Consumption, which we are counting on for the heavy lifting this year, will need to overcome the slight blip in inflation due to the dry spell.”
The Department of Agriculture has said that El Niño already caused P463.3 million in damage in just one month.
Mapa also noted that the delayed approval of the 2019 budget was already holding back the economy and said legislators needed to act.
“Against the backdrop of slowing growth due to the harsh and extreme weather conditions, the budget impasse simmers. Government officials paint a dour outlook should the budget be delayed further, we hope that the budget can and will be passed at the soonest,” he said.
“Passage of the 2019 budget will indeed help cushion the impact of El Niño on growth, which is already expected to hit a speed bump in the 1H (first half) due to slowing capital formation and now likely challenged government spending,” he added.
Socioeconomic Planning Secretary Ernesto Pernia on Wednesday warned that economic growth could slow to as much as 4.2-4.9 percent if the government was forced to operate on the 2018 budget for the whole year.
Growth targets for 2019 and 2020 were cut later that day by the interagency Development Budget Coordinating Committee, which cited the ongoing budget delay, El Niño and the US-China trade war.
The government is now aiming for 6.0-7.0 percent growth this year and 6.7-7.5 percent for 2020, down from 7.0-8.0 percent previously.
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