Storms, Prices, and Growth: Why Climate Change Is Now a Macroeconomic Risk for the Philippines

Climate change is already reshaping the Philippine economy, with severe typhoons pushing up food prices, raising inflation, and slowing growth, creating tough trade-offs for monetary policy. The IMF finds that sustained investment in climate-resilient infrastructure and flexible, credible policy responses are essential to protect long-term economic stability.

The Philippines is increasingly living with the economic consequences of climate change, and a new study by the International Monetary Fund shows that the costs are no longer theoretical. Prepared with input from the Bangko Sentral ng Pilipinas and informed by research from the World Bank, PAGASA, and the National Disaster Risk Reduction and Management Council, the report finds that climate shocks, especially powerful typhoons, are already shaping inflation, growth, and policy choices in the country. Climate change, the study argues, has become a structural economic risk rather than an environmental side issue.

Typhoons That Hit Prices and Growth

Typhoons dominate the Philippines’ climate risk landscape. The country is struck regularly by severe storms, including some of the strongest Category-5 typhoons in the world. Using regional data, the IMF study shows that these events behave like supply shocks. When a super typhoon hits, food prices rise sharply, pushing up overall inflation, with the strongest effects appearing about three months after the storm. At the same time, economic activity slows. Regional output falls immediately, agricultural productivity drops significantly, and losses spread to construction, manufacturing, utilities, and transport. Taken together, these effects reduce national GDP by roughly 0.2–0.3 percent in a typical year with severe typhoons, a meaningful drag on growth over time.

Why Food Prices Matter So Much

One of the report’s most important insights is the role of food prices in shaping inflation expectations. In the Philippines, households and businesses pay close attention to food costs when forming views about future inflation. As a result, a temporary spike in food prices after a typhoon can linger in people’s expectations long after crops recover and supply chains normalize. This makes inflation more persistent and harder to control. The study shows that much of the inflationary impact of typhoons comes from damage to agricultural capital combined with this strong focus on food prices, rather than from long-lasting productivity losses alone.

A Tough Test for Monetary Policy

These dynamics create difficult choices for the central bank. Using the IMF’s Global Dynamic Network model, the study finds that a single severe typhoon usually has a limited nationwide impact. But a year with multiple intense storms can become “macro-critical,” pushing inflation well above target while lowering growth. A strict focus on inflation can bring prices under control quickly, but at the cost of deeper output losses and slower rebuilding. A more flexible approach supports recovery and reconstruction, but allows inflation to stay higher for longer. The report concludes that a balanced, data-driven strategy, similar to the Bangko Sentral ng Pilipinas’ current framework, offers the best way to support growth while keeping inflation expectations anchored, especially when paired with clear public communication.

Investing Today to Avoid Bigger Losses Tomorrow

Fiscal policy is just as important in building climate resilience. The Philippine government has already increased climate adaptation spending and embedded resilience into its development plans. But the study warns that truly climate-resilient infrastructure, roads, energy systems, and flood defenses will require sustained investment. Using a macro-fiscal model, the IMF shows that repeated disasters can permanently lower GDP unless offset by resilient infrastructure. While such investment pays off over time, financing choices matter. Heavy reliance on borrowing raises debt and can crowd out private investment, while revenue reforms or spending reallocation deliver stronger long-term growth with fewer fiscal risks.

The message of the report is clear: climate change is already shaping the Philippine economy in visible ways. Typhoons are no longer just humanitarian emergencies; in bad years, they test inflation control, growth prospects, and fiscal stability at the same time. Strengthening resilience, through smart monetary policy, careful fiscal planning, and sustained investment in adaptation, is not only about managing climate risks. It is central to safeguarding the country’s economic future.