Climate change poses macro-critical risks to the Philippines as consecutive intense typhoons and rising temperatures threaten to disrupt supply chains and trigger persistent inflation, the International Monetary Fund (IMF) said in a study released over the weekend.
The paper, titled “Unpacking Macroeconomic Impacts of Climate Events and Policy Implications in the Philippines,” found that the occurrence of multiple and most intense typhoons within a single year can reduce aggregate output and raise prices.
The researchers used a combination of local projections and the Global Dynamic Network model to show that category-5 typhoons lower regional gross domestic product by about 0.4 percent on impact, while slashing agricultural labor productivity by 2.5 percent.
The study cited a specific vulnerability in the Philippine economy where households and firms place disproportionate weight on food costs when forming inflation expectations. This behavioral channel turns temporary supply disruptions into more lasting inflationary pressures, forcing monetary authorities to navigate complex trade-offs between anchoring expectations and supporting economic recovery.
While a single typhoon may not shift the national macroeconomic landscape, the IMF noted that a year of consecutive strong storms acts as an adverse supply shock. These events exert inflationary pressures on regional headline and food consumer price indices by roughly 0.4 percent and 0.7 percent respectively, with the peak impact occurring about one quarter after a storm hits.
Long-term environmental shifts also present significant financial threats. Under high-warming scenarios where average temperatures rise 3.1 degrees Celsius above pre-industrial levels, gradual warming could result in a 1 percent to 5 percent real GDP loss by 2100.
Rising sea levels are expected to cost the economy as much as 1.8 percent of GDP annually if no adaptation measures are taken, it said.
The report suggested that an optimal mix of coastal protection and strategic retreat could reduce the annual cost of sea-level rise by 95 percent, bringing the impact down from 2.1 percent to 0.1 percent of GDP. World Bank estimates cited in the paper suggest the cumulative economic costs of climate change could reach 7.6 percent of GDP by 2030 and 13.6 percent by 2040.
Bangko Sentral ng Pilipinas Governor Eli Remolona said in a 2030 sustainability report that various global climate risk indices reflect the country’s significant exposure to stronger typhoons, heavier rainfall and higher temperatures.
The Philippines has positioned climate resilience as a cross-cutting strategy in its 2023-2028 development plan and its 2023-2050 national adaptation plan.
The IMF researchers said the most appropriate monetary policy reaction is one that supports rebuilding efforts while maintaining the credibility necessary to keep inflation expectations anchored.
They noted that the BSP benefits from using models with rich sectoral granularity to better understand how weather events cause specific disruptions in the agriculture and labor sectors.
