Just as economies worldwide were rebounding from the slump inflicted by COVID-19, Russia’s invasion of Ukraine would slow down economic growth, trade, and jack up global oil prices, think tanks said.
In the Asia-Pacific region including the Philippines, still fragile economic recovery may be dampened by the war’s spillover effects on global supply of commodities, such that consumers should brace for higher prices of food items.
In a Feb. 25 report, investment banking giant Goldman Sachs noted that the Russian military’s move towards Ukraine jacked up Brent crude oil prices above $100 per barrel last week, which it said will inflict near-term inflation pressures globally.
With economic reopening in full swing, the Philippines this year targets to grow its GDP — the total value of goods and services produced locally — by an ambitious 7-9 percent as follow-through to last year’s better-than-expected 5.6-percent expansion. The Philippine economy shrank by 9.6 percent in 2020 — its worst annual recession post-war — at the height of the most stringent COVID-19 lockdowns at the onset of the pandemic, which shed millions of jobs and shuttered hundreds of thousands of business.
It did not help that inflation, or year-on-year consumer price hikes, for the most part of 2021 rose above the government’s 2-4 percent target range deemed manageable and conducive to economic recovery, no thanks to expensive food, especially pork amid the prolonged African swine fever (ASF) crisis.
This year, the government sees inflation peaking in the second quarter but settling within the target band for the entire year.
Oxford Economics’ estimates showed that the Philippines’ imports from Russia were only less than 1 percent of total, while exports of Philippine-made goods to Russia were very small or about 0.1 percent of total.
In the case of the Philippines, Oxford Economics estimates showed that higher oil prices would boost inflation by over 0.1 ppt, while foreign demand would be reduced by 0.3 percent.
Overall global growth would shed 0.2 ppt while worldwide inflation would go up by 0.7 ppt as a result of the Russia-Ukraine war, according to Oxford Economics.
Oxford Economics warned that “even after the general risk-off sentiment eases, concerns may persist” for Asian countries with “twin deficits” — a budget deficit and a current account deficit — like the Philippines, India and Indonesia.
The Philippines had been spending a bigger amount to fight the prolonged pandemic than the tax and non-tax revenues it collected amid the harder times, hence posting wider budget deficits during the past two years than the usual gap equivalent to 3 percent of GDP.
UnionBank chief economist Ruben Carlo Asuncion said that “any further fireworks sparked by Ukraine-Russia tensions will cause oil prices to spike up including natural gas, which is bad for net oil importing emerging markets like the Philippines as such will spill over into more cost-push inflation for us.”
Also, “a protracted conflict will stall any upbeat growth momentum,” such that “consumer and business sentiment will turn cautious and worry over the broadening of the conflict in Europe,” Asuncion warned.
On the flip side, Asuncion said expensive oil “may ease the budget deficit since the government will be able to collect more revenues from higher oil prices, but potential suspension of oil taxes may do otherwise.”
Barclays regional economist Shreya Sodhani said that inflation risk in the Philippines resulting from the Ukraine-Russia tensions “will come mostly from the dramatic increase in oil prices.” (©Philippine Daily Inquirer 2022)
