Finance Secretary Carlos G. Dominguez III said the Philippine economy will likely be “collateral damage” and suffer “indirect shocks” on four major channels from the ongoing Russia-Ukraine war.
Speaking before President Duterte and several Cabinet members on Monday night, Dominguez said the Russia-Ukraine war will affect the country’s commodity market, financial market, investments, and its fiscal health.
While Dominguez said the Philippines is not directly involved in the war, he said the country will still be affected because the conflict will likely spur an increase in oil and food prices, surge in interest rates, and decline in investments amid risk-off environment.
“It is as if we are hit by ricocheting bullet,” Dominguez said during his presentation to President Duterte and the Cabinet following the meeting of Economic Development Cluster this afternoon wherein they discussed the policies that they will recommend to the President to alleviate the impact of rising oil prices amid the geopolitical tension between Russia and Ukraine.
“First, oil and food prices are expected to go up as Russia is the largest exporter of natural gas and wheat, while Ukraine is the fourth largest exporter of corn. As the conflict continues, Ukraine and Russia’s main trading partners, predominantly the European Union, will look to trade with other countries such as US and China, where we are buying both wheat and corn, thereby pushing up the prices of commodities in these markets as well,” he said. “Second, the conflict will also likely cause a surge in interest rates or cost of borrowing which was already expected to go up even prior to the crisis because of the US Fed’s tightening monetary policies. The conflict will increase the perception of risk in investments.”
Dominguez added the conflict will also cause investors from the West to be more conservative or postpone their planned investments amid uncertainty.
“Once sanctions are imposed it will take a long time for investor and consumer confidence to return to normal,” he said.
Apart from this, Dominguez said the economic impact will likely require government support to protect the citizens and the critical sectors and this will further stretch the country’s budget.
Although the finance chief said the crisis may increase prices across several sectors and cause the country’s inflation rate to breach the government’s target of 2 to 4 percent, he expressed confidence that the government will still be able to hit its inflation target as well as its 7 to 9 percent economic growth target for the year.
Dominguez also stressed that they do not expect the crisis to last very long but he said he said there “may be some lingering effects.”
However, he said the country has already weathered similar crises in the past, including the 1990 first Gulf War, 1997 Asian financial crisis, 2008 oil price shock, and also the 2014 first Russia Ukraine conflict.
“These crises lasted like much longer and yet we were able to get through them. Based on these experiences, we are confident that we have the tools and the preparation necessary to help our people through this crisis,” he said.