SEVERAL local banking economists said the escalating tensions between Russia and Ukraine are set to put pressure on the local economy, particularly through rising inflation and weakening of the currency in the near-term.
In separate responses to the BusinessMirror, ING Bank economist Nicholas Mapa, UnionBank economist Carlo Asuncion and Rizal Commercial Banking Corp. (RCBC) economist Michael Ricafort said oil prices will start to escalate, which, in turn, could affect the peso’s value against the dollar.
This, as the Department of Trade and Industry (DTI) said that while it is still studying the impact of the Ukraine-Russia tensions on trading, its concern stems more from how the situation can disrupt the global supply chains and potentially drive up prices.
Trade Secretary Ramon Lopez told reporters on Wednesday they are still looking into how the current situation in Eastern Europe will affect the imports and exports of goods, but he assesses that it will have “less direct impact.”
The DTI official noted that the Philippines’s trade with Ukraine is “only around” $200 million, making it the country’s 40th biggest trading partner. As for trade with Russia, Lopez said “nothing has changed.” He noted that the total export and import receipts with that country is around $2 billion.
A pressing concern now, he stressed, is how the Ukraine-Russia tensions can cause bottlenecks to global supply chains.
“But it’s disruption in the prices and supply chain of oil and key commodities like wheat, iron ore, and the high degree of uncertainties if such crisis worsens are the factors that can impact global recovery efforts,” Lopez explained.
Pressure on inflation
ON top of the likely impact on overall sentiment, the escalating tensions on the Russia Ukraine border will likely ratchet up pressure on Philippine inflation, ING Bank’s Mapa said.
“A protracted period of elevated energy prices will definitely filter through to higher imported energy inflation with the double whammy of fomenting PHP depreciation pressure as firms need more dollars to cover pricier oil,” he added.
Asuncion said the peso could weaken to P52 to a dollar. On Wednesday, data from the Bankers’ Association of the Philippines (BAP) showed that the peso closed trade at P51.1 to a dollar.
“Any further fireworks sparked by US-Russia tensions will impact the Philippines [as it could] cause oil prices to spike, including natural gas. [This is] bad for net oil importing emerging markets like the Philippines [as it could] spill over into more cost-push inflation for us,” Asuncion said.
“A prolonged conflict will stall any upbeat growth momentum. Consumer and business sentiment will turn cautious and worry over the broadening of the conflict in Europe,” he added.
Ricafort also said the higher inflation could nip growth momentum in the bud. “Higher inflation would slow down the economic recovery, amid the reduction in the purchasing power or disposable income amid more spending for oil and to pay for higher prices of affected goods services,” Ricafort said.
The oil factor
LOCAL economists earlier expressed worry that the international crisis will lead to higher oil prices for the Philippines. (Related story: War-fueled oil price inflation impact eyed, https://businessmirror.com.ph/2022/02/22/war-fueled-oil-price-inflation-impact-eyed/)https://businessmirror.com.ph/2022/02/22/war-fueled-oil-price-inflation-impact-eyed/
Image credits: Nonie Reyes