Private think tank warns of higher prices in H2 as a direct impact
An 80 percent chance of the El Niño dry spell running through the end of the year could slash Philippine economic growth further and calls for an urgent strategy to avert what could be its worst possible impact, a private think tank said.
Citing the latest update from the United States’ National Oceanic and Atmospheric Administration, the Metrobank Research said in its latest weekly report there is a 90 percent chance that El Niño may continue through the summer and an 80 percent probability of it lasting until the yearend.
“It should be noted that the agriculture sector is not the only economic sector that is affected by this phenomenon, which is why it could reduce GDP [gross domestic product]growth if it proves to be severe and prolonged,” Pauline Revillas, analyst at Metrobank Research, said in the report.
Higher consumer prices seen in H2
The analyst warned that the impact of the dry spell could be seen directly on consumer prices, particularly in the last six months of 2015.
“Upside inflationary pressure is likely in the second half of the year as the third quarter is also a lean season for rice production here in the Philippines,” Revillas said.
Importation would mean higher prices as the dry spell could also affect the rice stocks of major exporting countries such as Thailand and Vietnam, she added.
At its monetary policy meeting on May 14, the central bank adjusted upward its inflation forecasts for 2015 and 2016 to account for the impact of El Niño on consumer prices.
The BSP now projects inflation for full-year 2015 at 2.3 percent, up from a previous forecast of 2.2 percent. For 2016, it raised its forecast to 2.6 percent from 2.5 percent.
Growth in the country’s gross domestic product (GDP) in the first quarter of 2015 failed most analyst expectations when the latest official data, released on Friday, showed a much slower than expected pace of 5.2 percent. Private analysts had forecast growth of between 6.0 percent and 6.8 percent. The government had set a target range of 7 percent and 8 percent for this year and reaffirmed that projection for 2015 despite the sharp slowdown in the first quarter.
Revillas said energy-intensive industry sectors could also bear the brunt of the impact on electricity supply, especially in Mindanao because of the area’s high dependence on hydropower. Manufacturing also stands to get hit by constraints in the supply of agricultural products, while tourism and the banking sector are also expected to be affected.
“A comprehensive and coordinated plan from both the public and private sectors to address the dry spell is essential to avert the worst possible impact of El Niño on the economy,” Revillas said.