Flooding in Manila

By Romeo Bernardo & Marie-Christine Tang

October 1, 2009

Even for a disaster-prone country, the flooding in Manila over the weekend, the ninth episode in 2009 alone, is one for the record books. The amount of rainfall dumped by typhoon Ketsana (locally named Ondoy) was unprecedented with water levels rising rapidly, in some cases almost covering single-storey houses, including in certain middle income subdivisions, within 20 minutes.

All of Metro Manila has been focused on relief efforts as floodwaters slowly receded during the week. This has contributed to lackluster trading in local financial markets in the past days. Nevertheless, the few working analysts have started to put together likely outcomes, with some offering positive views and others, negative.

Government has been quick to downplay any macroeconomic impact of the present shock, claiming
minimal GDP and inflation impact and keeping targets for the year intact (GDP at 0.8% to 1.8% and
inflation at 2.5% to 4.5%). Despite legislative initiatives to pass a P10-billion supplemental budget,
the Finance Department has stated commitment to its P250-billion deficit target, noting current
adequacy of an existing P2-billion calamity fund.

With Metro Manila alone accounting for a third of Philippine GDP (including other affected regions,
the share rises to over 50%) and with recovery from the global crisis still quite weak, it is hard to
ignore the immediate negative impact on consumer and business confidence of the event.
Moreover, given the damage to life and property[1], negative wealth effects can be expected to
dampen consumer demand going forward even as the country enters the Christmas season.

Nevertheless, we think that there will be other fund sources to help sustain spending, including:
1. remittances, as overseas Filipino workers pitch in with additional contributions to family
members affected by the floods (we have noted evidence of compensatory remittance
behavior in an earlier report).
2. borrowings, for consumer and home loans as well as business re-stocking and plant
repairs, the latter suggesting some short-term private investment activity (even though
bankers are anticipating an uptick in delinquency)

3. dissaving, that may see a spike in demand for building supplies and replacement
appliances in the short-term, even as spending on non-essential items are cut back.

4. transfers from the local and international community

More information is expected to come in in the next few days, including any add-on effects of
another super typhoon (stronger winds, less downpour) that has just entered the country.

According to the local weather bureau, even if the new typhoon brings only a fourth of the rainfall
experienced last week, flooding can be expected, especially in areas where water has yet to
recede. We will comment more on the overall impact of the flood in our upcoming Quarterly Report.

_______
[1] As of the latest official count, the flooding has affected over 2.5 million people with more than 270 dead,
680,000 dislocated and 4600 houses totally or partially wrecked. Damage to infrastructure and agricultural
output is estimated at $100 million to date. Moreover, there have been disruptions to factory, trading and
banking operations as well as power, telephone and water delivery, among others.