Impact on GDP minimal

The economy may grow slightly slower than forecast this year after storm Ondoy caused flooding and damaged homes and crops, Economic Planning Secretary Augusto Santos said yesterday.

“The recent storm could reduce the real gross domestic growth rate in full year 2009 by at least 0.043 percentage point,” Santos said in a statement, citing his presentation to President Gloria Arroyo. Growth could slow to a range of 0.7 percent to 1.7 percent compared with a target of 0.8 percent to 1.8 percent, he said.

Santos said the government would keep the target “for now,” citing stronger-than-forecast overseas remittances.

Santos earlier said the 0.1- percent decline represented about P6 billion to P7 billion of the gross domestic product, which was projected to reach close to P8 trillion at current prices this year.

The GDP refers to the total value of products and services produced in a given year. Economists said reconstruction of areas damaged by calamities would actually boost the GDP, because of new construction and the employment it would generate.

Citing preliminary estimates, the National Disaster Coordinating Council earlier said some P1.4 billion worth of infrastructure were damaged because of heavy rains that triggered heavy floods on Saturday.

The figure was on top of damages on agricultural crops estimated at hundreds of millions of pesos and those on homes, buildings, vehicles and other properties of nearly half a million people who were displaced by the floods.

The peso and the stock market rose yesterday after falling Monday on speculation the government would have to increase its borrowing and economic recovery might slow after Ondoy swept through Metro Manila and Luzon.

The peso closed at 47.59 against the US dollar from Monday’s 47.61 while share prices rose yesterday, lifted by the recovery on Wall Street,

“There could be additional expenses to restore stability in the hit areas, which means additional spending and a bigger deficit,” said Ricky Cebrero, treasurer at East West Banking Corp. “Inflation may creep upwards faster than normal in this scenario.”

“Fundamentally there’s no catalyst for the exchange rate to depreciate,” Cebrero said. “There are lot of flows and less demand for dollars at this time of the year.”

The stock market bounced back after being spooked by the effects of the floods on the economy.

“We were actually expecting a much bigger rise,” but the market appears to be weighed down by concerns over massive floods spawned by the storm earlier this week, Doreen Mijares of IGC Securities Inc. told Agence France-Presse. –Roderick T. dela Cruz with AFP, Bloomberg