Nomura Group warns: Philippines among most vulnerable Asian countries to El Niño’s economic impact

Nomura Group, a Japan-based analysis and research firm, said the Philippines, along with other Asian countries, is highly vulnerable to the impacts of El Niño on economic growth, which may lead to a potential increase in the monetary policy rate.

This assessment comes as climate experts announce the onset of El Niño, a climate phenomenon that brings reduced rainfall to the Philippines and poses a threat to agricultural production.

The United Nations’ Food and Agriculture Organization (FAO) has also noted an increase in international rice prices.

In a report, Nomura stated that with the occurrence of El Niño, they expect fiscal and supply-side policies, such as social assistance, price controls, and subsidies, to be the initial defense measures.

The company believes that monetary policy is unlikely to be utilized, although rate cuts may be postponed. Due to limited fiscal capacity and high inflation risks, the Bangko Sentral ng Pilipinas (BSP) may need to resume raising interest rates.

Nomura further explained that El Niño can hamper agricultural production and contribute to higher food inflation, particularly in countries like the Philippines that heavily rely on food imports.

The firm stated that El Niño is likely to result in a stagflationary shock, characterized by higher inflation and lower growth.

Among Asian countries, Nomura identifies India, the Philippines, and Thailand as more susceptible to downside growth risks, while most countries would experience the effects of higher inflation, particularly those dependent on food imports.

The report highlighted that the Philippine government plans to import 330,000 metric tons of rice this year to compensate for an expected deficit in the buffer stock.

Meanwhile, according to the FAO, international rice prices rose in May, and domestic prices increased in exporting countries like Vietnam and Thailand, which are major rice suppliers to the Philippines.

The FAO attributed these price hikes to steady demand and concerns over the potential impact of El Niño on crop yields and planting areas in the subregion.

Nomura projects that a severe El Niño event could potentially reduce Philippine GDP growth by 0.2 percentage points.

The Climate Prediction Center (CPC), based in the United States, declared the presence of El Niño conditions in an advisory dated June 8.

El Niño, according to CPC, will gradually strengthen throughout the winter of 2023-2024 in the Northern Hemisphere, with a 56% chance of it being “strong” and an 86% chance of it exceeding moderate strength.

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