The economic cost of Typhoon Haiyan

A house by Tacloban airport (Getty)

By Amie Tsang and Luisa Frey
The Philippines is no stranger to natural disasters. But in just a few days, it has been transformed from emerging market star – its economy grew at annual rate of 7.6 per cent in the first half of 2013, faster than China – to a “state of national calamity”.

Typhoon Haiyan will cause inevitable damage to the country’s economy, but loss of output will be dwarfed by the devastating loss of life.

The Asian Development Bank estimates that losses from typhoons and earthquakes cost the Philippines around $1.6bn each year. The World Bank estimates the annual typhoon season typically shaves 0.8 percentage points off annual GDP growth.

Some analysts fear that Typhoon Haiyan and the devastation it caused in the central Philippines could lead to a slowdown in growth and supply shocks could push up inflation in the next few months.

Total losses after Typhoon Haiyan will amount somewhere between $12bn and $15bn, or about 5 per cent of economic output, according to Kinetic Analysis Corp, a US-based a hazard-research company. However, economists say the lift from spending on reconstruction after natural disasters usually helps growth to rebound.

The areas worst hit by the typhoon account for 15 per cent of the Philippines’ GDP, according to the Economist Intelligence Unit. In the worst-hit areas of Leyte province, sugarcane and rice production are major industries and the typhoon hit four of the country’s biggest rice-producing provinces at the beginning of harvest season. The Philippines was the eighth biggest rice-producing country in the world in 2012, according to the FAO. But the impact on rice output could be limited. HSBC said the loss of rice production is forecast to be about 0.01 per cent of annual production.

With an about 6000 hectares of sugar area flattened, Trinh D Nguyen, an analyst at HSBC, estimated that 3.5 per cent of the total sugarcane crop had been destroyed – worth about 0.1 per cent of GDP. She also estimated that the total loss to the main industries in the region would come in at about $324m (0.2 per cent of GDP).

Diwa Guinigundo, the Philippines’ deputy central bank governor, has said the flow of remittance payments from the 10.4m Filipinos working overseas could increase in response to the disaster, while President Aquino stated that the country has $530m to cope with the aftermath of the disaster.

Remittances have certainly aided the economy in its growth so far. They account for some 8 to 10 per cent of the country’s GDP and rose 6.6 per cent in the first eight monhts of the year to $16bn. They keep consumer spending buoyant: private consumption, which comprises over 70 per cent of GDP, rose 5.2 per cent year on year in the second quarter of 2013.

While remittance may cushion the typhoon’s impact on the economy, this is still one of the worst disasters to have hit the Philippines. Ms Nguyen pointed out that, in light of a growing population and frequent natural disasters, there is “a structural challenge that must be addressed – low investment in infrastructure and inadequate disaster preparedness.”