THE war in Eastern Europe will cause inflation to breach the Central Bank’s target this year because of spiraling crude oil and commodity prices, according to a local think tank.
However, First Metro Investment Corporation-University of Asia and the Pacific (FMIC-UA&P) Capital Market Research said the conflict’s impact on the Philippine economy will be “mild.”
“However, its [Russia-Ukraine war] impact on the economy will likely turn out mild amid heavy election spending in H1 and growing business confidence and robust earnings,” FMIC-UA&P Capital Market Research said.
“Despite an acceleration in M3 growth, BSP [Bangko Sentral ng Pilipinas] has reiterated, and we think so too, their determination to keep policy rates unchanged for most of 2022,” it added.
The impact of the war in Eastern Europe on the economy will be cushioned by election spending expected in the first semester of 2022; growing business confidence; and robust earnings.
The think tank said national government spending is expected to accelerate as the May 2022 Presidential elections draw near.
FMIC-UA&P Capital Market Research said government spending slowed in December in preparation for 2022 and in light of the cash-based budget system.
Manufacturing boost
THE think tank also said business firms and workers anticipated the relaxation of Covid-19-related restrictions in late February.
This has allowed the country’s manufacturing Purchasing Managers’ Index (PMI) to jump to 52.8 in the same month from 50 in January 2022, representing a 26-month high for PMI.
Further, FMIC-UA&P Capital Market Research said business confidence is also improving because of the growth in the import of capital goods at 16.8 percent. This marked the 9th consecutive month of year on year gains.
However, the Russia-Ukraine war will cause inflation to reach 4 percent in March, and this could continue the pressure on the peso to depreciate, it pointed out.
“The dollar-peso rate, which breached P52/$ in early March, will remain under pressure until the Russia-Ukraine conflict gets some reasonable form of resolution,” the think tank said.
Earlier, the National Economic and Development Authority (Neda) said the economy still had a few aces up its sleeve that will enable it to weather the impact of the European crisis.
Socioeconomic Planning Secretary Karl Kendrick T. Chua said the crisis will hit the economy on four fronts: commodities, financial markets, trade, and business confidence.
However, Chua said the full strength of the domestic economy has yet to be unleashed as parts of the country remain under Alert Level 2 and many offices and schools have yet to open. Currently, the country is still P40 billion short of its normal economic performance per week.
Chua said shifting the entire country to Alert Level 1 will add another P16 billion to the country’s GDP per week while opening classes will add another P12 billion to the economy per week.
The country’s chief economist said only 1,000 schools have since started face-to-face learning, which is only a fraction of the 60,000 schools in the country.
He added that recommendations including placing the National Capital Region (NCR) or Metro Manila, the economy’s juggernaut, to Alert Level Zero could further boost economic growth.
Chua gave assurances that the President’s economic team is closely and regularly monitoring developments in Eastern Europe. The crisis in Europe has been blamed for skyrocketing commodity prices, most notably oil prices, which the country imports.
Image credits: Satellite image ©2022 Maxar Technologies via AP
