IMF: Climate shocks taking higher toll on Philippine economy

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December 29, 2025 | 12:00am

MANILA, Philippines — Climate-related disasters are imposing recurring macroeconomic costs on the Philippines and are expected to weigh more heavily on growth and inflation over the long term, according to the International Monetary Fund (IMF).

In its staff report for the 2025 Article IV Consultation, the IMF said that typhoons, the country’s most frequent natural disaster, result in annual economic losses of approximately 0.2 to 0.3 percent of gross domestic product (GDP), with the impact being felt most strongly in the agriculture sector.

These recurring shocks also contribute to higher inflation – effects that are already incorporated into the IMF staff’s baseline outlook.

“Typhoons are the most frequent natural disasters in the Philippines, causing recurring economic losses – about 0.2 to 0.3 percent of GDP annually, mainly impacting agriculture – and contributing to higher inflation,” the report said.

Over the longer term, the IMF warned that climate-related risks are likely to intensify. Climate models cited in the report project more powerful typhoons and rising sea levels, which could result in economic losses of up to two percent of GDP each year in the absence of adequate adaptation measures.

Beyond their impact on output, climate shocks also complicate the conduct of monetary policy.

IMF staff analysis found that climate events, acting through supply, demand and expectations channels, can raise inflation by as much as 0.6 percentage points on an annualized basis in a typical year. The effects are again concentrated in agriculture, where disruptions tend to push food prices higher.

The IMF noted that food price pressures play a disproportionately large role in shaping inflation dynamics in the Philippines, given the sector’s significant weight in household consumption and inflation expectations.

Climate shocks, therefore, pose a risk of amplifying inflation even when their initial impact is temporary.

Against this backdrop, the IMF welcomed the Bangko Sentral ng Pilipinas’ ongoing efforts to integrate climate considerations into the BSP’s policy framework.

“The BSP efforts to include climate considerations in monetary policy are welcome and should continue,” the report said.

However, the IMF emphasized the policy trade-offs facing the central bank when responding to climate-related supply shocks. While accommodating such shocks could risk fueling inflation expectations, an overly aggressive tightening could raise borrowing costs and slow post-disaster recovery.

“While accommodating some of the shocks risks triggering a rise in inflation expectations, tightening monetary policy to keep inflation at target would raise the cost of capital, which can delay reconstruction and pose a greater loss in output,” the report said.

Faced with these trade-offs, IMF staff recommended a balanced approach. The BSP, they said, “should accommodate a temporary spike in inflation while containing any increase in inflation expectations,” particularly when shocks are clearly driven by climate events rather than demand pressures.

The IMF also underscored the importance of policy coordination beyond monetary tools. A “coordinated policy response,” including measures such as lowering tariffs on food imports, could help ease inflationary pressures and reduce the burden placed on monetary policy during climate-related disruptions.

The Fund also emphasized that climate change poses a structural macroeconomic risk to the Philippines. Without sustained investment in adaptation and resilience, the frequency and severity of climate shocks are likely to continue eroding growth prospects and complicating inflation management in the years ahead.