The Manila Times Philippines Big Loser In Ukraine-Russia War

By Mayvelin U. Caraballo, Francis Earl Cueto, Javier Joe Ismael

A STEEP rise in oil and food prices triggered by the war in Ukraine could hit Asian economies hard, with the Philippines among the biggest losers, the Japan-based global investment firm Nomura predicted.

“Although ongoing geopolitical tensions between Russia-Ukraine can hurt Asia through multiple channels, such as tighter global financial conditions, elevated uncertainty and the risk of weaker global demand, higher commodity prices are the most important transmission channel,” Nomura said in a report released on Friday.

Brent crude oil prices, which are now over $100 a barrel, reflect the geopolitical risk from the conflict, it said.

Russian forces launched a land, sea and air invasion of Ukraine Thursday.

Nomura said food prices have already gone up, partly because Russia is one of the world’s biggest producers of wheat and corn, but also because of the impact of higher oil prices on transportation, fertilizer and feedstock costs, and biofuel substitution.

The fallout from the war will be deeply felt in Asia, where most nations import oil, and food and energy account for roughly half of emerging market consumption expenditure, it said.

“In Asia, India, Thailand and the Philippines are the biggest losers, while Indonesia would be relative beneficiary from higher commodity prices,” Nomura said.

It sees rising inflation hurting Thailand, where food and energy accounts for 52.7 percent of the consumer price index or CPI, India (45.9 percent) and the Philippines (43.4 percent).

Because most Asian consumers have not fully recovered from the effects of the coronavirus pandemic and have seen their savings shrink, inflation could put a squeeze on real disposable earnings, weakening consumption rebound, Nomura said.

The impact could be disproportionately felt by lower-income households.

“We also see risk to corporate profit margins, as the entire input cost burden is unlikely to be passed on to consumers. For a 10 percent oil price rise, GDP (gross domestic product) growth could be 0.2pp (percentage point) weaker in India and 0.1pp lower in the Philippines and Thailand,” Nomura said.

The Philippines faces a significantly bigger current-account deficit due to its high reliance on oil imports and immediate pass-through to consumers due to the lack of subsidies, it said.

(This news item was downloaded from The Manila Times.)