HIGHER temperatures brought by climate change will significantly reduce the country’s GDP growth, according to the latest discussion paper released by the Bangko Sentral ng Pilipinas (BSP).
In the paper titled, “Macroeconomic effects of temperature shocks in the Philippines: Evidence from impulse responses by local projections,” BSP Department of Economic Research (DER) economists said a 1-degree celsius increase in mean temperatures could lead to a 0.37-percentage-point reduction in economic growth.
The reduction increases if El Niño Southern Oscillation (ENSO) events are taken into consideration and would reduce GDP growth by 0.47 ppts.
“In the long run, output growth declined by a cumulative 1.12 ppts eight [8] years after the shock when controlling for the occurrence of floods and storms while controlling for ENSO periods did not yield a significant result although the sign remained negative,” the economists also said.
Further, a 1-degree celsius increase in temperature could lead to higher inflation over a period of up to four years.
The economists said this will lead to a “cumulative increase of 0.77 ppt in headline inflation after the initial shock.”
“The impact components of consumer prices, the results show that the inflationary impact of temperature shocks on food prices is deeper in magnitude and long-lasting in period at 0.79 ppt. vis-à-vis the effect on non-food prices, which is rather small at 0.31 ppt. and transitory up to 2 years only,” the paper stated.
Hotter temperatures would also have wide-ranging impacts across sectors in the economy. The largest impact is on agriculture.
Rising temperatures brought by climate change could reduce palay production by 1.83 ppts and corn production, 3.51 ppts. However, the hotter temperatures could lead to higher mango production or by 3.1 ppt.
“These results show that higher temperatures have varied results on food production which, in turn, could have implications in the formulation of the government’s support programs as well as in setting up crop-targeted insurance schemes,” the economists said.
In terms of its impact on the manufacturing and services sectors, higher temperatures could reduce factory output by 1.8 ppts and services growth, 0.7 ppts.
However, labor productivity in heat-exposed industries such as construction, transportation, and manufacturing will not be significantly affected.
The economists said the results showed that workers in these industries are already used to the hot working conditions such that an increase of one degree celsius in mean temperatures will not have a significant impact on their productivity.
Given these findings, the economists recommended that the government increase its spending and investment on research and development (R&D), particularly for agriculture.
Citing findings of other studies, the economists noted that only 0.4 percent of their value added in agricultural sector was invested in agricultural research in 2017 and 2016,respectively.
“It is crucial for the country to go through a paradigm shift—from being commodity-driven to taking a holistic agricultural system approach through a rigorous implementation of policies and programs to promote climate-resilient agriculture technology and practices to ensure food security amid rapidly changing climate,” the economists said.
The economists also said the impact of climate change on various crops can be useful in crafting financial products that would be suitable to climate change conditions.
They said risk weights used by banks and insurers can be aligned and refined to take into consideration crops being cultivated for loan account or insurance coverage.
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