Climate Change’s Economic Toll: The Philippines Faces Critical Challenges

The Philippine economy is at a crossroads, facing a substantial threat from the escalating impacts of temperature shocks. The Bangko Sentral ng Pilipinas (BSP) has raised alarms over the potential economic repercussions of rising temperatures, emphasizing the urgency for adaptive measures. According to a recent discussion paper from the BSP, an increase in the country’s annual mean temperature by just 1 degree Celsius could significantly dent the aggregate economic output growth, reducing it by 0.37 percentage points over the long term.

This research, a pioneering effort in the country to quantify the economic fallout of temperature variations, particularly underscores the perils posed by severe drought conditions, like those triggered by El Niño. Such scenarios could exacerbate the economic downturn, further reducing output by 0.47 percentage points. The findings highlight a critical vulnerability that necessitates swift and strategic responses, especially in bolstering the agriculture sector to safeguard its pivotal role in the nation’s economic stability.

The study, spearheaded by a team of BSP researchers, casts a spotlight on the diverse effects of temperature increases across the economy. Notably, agricultural productivity faces a dire threat, with key staples such as palay and corn experiencing projected declines in production by 1.83 and 3.51 percentage points, respectively, for each degree Celsius rise in temperature. Conversely, certain crops like mangoes could see a slight benefit from minimal rainfall during warmer periods.

However, the overarching impact of these temperature-induced changes in agriculture extends beyond the sector itself. The potential spike in food prices, driven by reduced crop yields, could contribute to a significant uptick in the country’s headline inflation rate by 0.77 percentage points. The repercussions are also expected to ripple through the manufacturing and services sectors, with projected output declines of 1.8 and 0.7 percentage points, respectively, attributed to diminished labor productivity under higher temperatures.

The BSP’s call to action is clear: the Philippines must shift its approach towards agriculture from a commodity-centric view to a more integrated agricultural system perspective. This strategic pivot is deemed essential for mitigating the economic risks posed by climate change and ensuring the resilience and sustainability of the Philippine economy in the face of mounting environmental challenges.