THE National Government’s efforts to implement preemptive measures against the looming “Super El Niño” could cushion the economy despite its vulnerability to weather disruptions, Standard and Poor’s (S&P) Global Ratings said.
“S&P Global Ratings believes that stronger early preparedness frameworks will keep the overall macroeconomic impact in Asia manageable,” S&P Asia-Pacific Senior Economist Vishrut Rana and Asia-Pacific Chief Economist Louis Kuijs said in a report dated Aug. 4.
“Measures such as shifting to water-efficient crops, maintaining higher grain reserves, and improved water management, along with a declining role of agriculture, can buffer the fallout from a severe El Niño event,” they added.
The S&P economists cited the Department of Agriculture’s (DA) recent measures to help the local agriculture sector prepare for the potential impact of El Niño.
“In the Philippines, the Department of Agriculture is working with farmers to adjust planting timelines,” they said. “It is also asking farmers to shift to less water-intensive crops, proactively plan irrigation, and enact water-saving measures.”
The DA projects agricultural output to be slashed by about 20% to 30% once the Super El Niño comes.
Local farm production contracted in the first quarter, as a decline in crops and fisheries dragged the total output down by 0.3%. Second-quarter agricultural production data will be released on Thursday (Aug. 6).
According to the debt watcher, the Philippines’ rice, sugarcane, and coconut crops will likely bear the brunt of El Niño.
S&P’s optimism came even as they identified the Philippines, alongside neighboring countries in South and Southeast Asia, as among the most vulnerable to the looming El Niño phenomenon.
“South and Southeast Asia are among the more vulnerable regions globally to El Niño,” Mr. Rana and Mr. Kujis said. “Lower rainfall associated with the climate phenomenon will raise food prices and disrupt water-intensive industries.”
The Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) has confirmed the presence of weak to moderate El Niño conditions in the tropical Pacific.
It expects the Philippines to encounter a strong El Niño season by the third quarter, which could intensify into “very strong” conditions by October until January next year.
El Niño is set to strengthen the southwest monsoon and tropical cyclones as well as cause severe dry conditions in parts of the country, PAGASA added.
Such extreme weather conditions could imperil the local agricultural sector, likely resulting in higher food and electricity prices across the country.
“(Food) prices are spiking in economies such as the Philippines, India, Vietnam, and Indonesia,” S&P noted. “Households in these countries are more vulnerable to further weather-related supply shocks.”
S&P cited CEIC data showing the Philippines had the fastest headline and food inflation in June among select Asia-Pacific economies, exceeding India, Vietnam, Indonesia, Malaysia, and Thailand.
According to the Bangko Sentral ng Pilipinas (BSP), drier-than-normal conditions could trigger local supply disruptions and stoke domestic rice prices by 8.5% over the next 12 months.
Earlier last month, the BSP said price pressures from the looming El Niño, particularly its impact on rice prices, could drive headline inflation above its 3% target for longer.
The BSP’s latest projections show inflation could average 6.4% this year, before slowing to 4.5% next year and 3.1% in 2028.
Beyond agriculture, the Super El Niño also threatens the Philippines’ hydropower sector even as the country’s reliance on it is slightly less than its regional peers, the S&P economists likewise noted.
“Outside agriculture, hydropower generation will be one of the most important transmission channels at risk,” they said.
Hydropower accounts for 9% of the country’s total electricity generation, lower than Vietnam’s 30% and Malaysia’s 19% but higher than Indonesia and India with 7% each and Thailand with 3.5%.
Still, Mr. Rana and Mr. Kujis noted that economies in Asia-Pacific are in a relatively better position to weather the upcoming El Niño event than in previous years.
“Efforts to prepare early will help to buffer the impact of rainfall disruption,” they said. “We are watching the degree to which Asia-Pacific can contain the broader macroeconomic impact. For now, things look better than they have during past El Niño events.” — Katherine K. Chan
