The Philippines is one of the fastest growing economies in Asia and was upgraded to investment grade earlier this year on the back of sustained remittances and consistent macroeconomic policy. The Philippines until the third quarter of 2013 showed strong growth at 7%, reaching an average growth of 7.4% in the first three quarters.
Typhoon Haiyan hit central Philippines on 8 November, causing widespread destructions in the Eastern Visayas region and some nearby areas. The human impact was large and resulted in the displacement of more than 850.000 families with almost 4000 deaths. On the economic front, the impact was mainly felt on the agricultural sector (rice and coconuts), on supply chains and the destruction of infrastructure, but this negative impact on the economy should be somewhat offset with the rebuilding of the most affected areas in the coming quarters. The trade balance should deteriorate a bit as imports related to the disaster continue to surge, while exports are still affected by the disruption. Higher remittances should help finance consumption and avoid a deterioration of the current account. Supply side constraints could also put some upward pressure on inflation, but inflation should remain moderate. November’s headline inflation picked up to 3.3% yoy from 2.9% the previous month. This upward trend could continue in the coming months. Overall, the negative economic impact should be front loaded, but not large in scale since the disaster should have limited spillovers to the rest of the country as the affected region is a small contributor to the country’s GDP growth.