Ukraine conflict may impact flow of goods in AsPac – Moody’s

MANILA, Philippines — The escalating conflict between Ukraine and Russia may impact the flow of goods between Asia and Europe, causing commodity prices to increase in Asia-Pacific, including the Philippines.

In a commentary, Moody’s Analytics said Asia-Pacific nations may benefit from their low exposure to the goods that Ukraine and Russia produce like automotive parts and machineries.

However, Moody’s said the escalating tensions would impact the flow of goods between Asia and Europe, adding pressure to the already volatile inflation situation in many Asia-Pacific economies.

“Inflation, made worse by high global commodity and food prices, combined with some renewed supply chain disruptions, will cause growth in the Asia-Pacific region to slow moderately.

The baseline forecast, however, anticipates only a slightly slower growth rate through midyear, and with some improvement by the end of the year,” Moody’s said.

As of March, Moody’s expects the average economic growth in Asia-Pacific at 4.4 percent in 2022 and 4.7 percent in 2023.

By scenario, the region’s economy for this year could grow by 4.3 percent on limited disruption, but could also expand by just 3.6 percent on a lengthy conflict.

Moody’s also said that the central banks of India, Thailand, Australia and the Philippines may raise interest rates soon due to inflationary risks.

It said that central banks in these economies should watch out for the pace by which the US Fed takes its policy normalization, as they may have to mirror the Fed’s actions to hold off inflationary pressures.

“Should the Fed accelerate its path to policy normalization, Asia-Pacific central banks may have little choice but to commence tightening policy if they have not done so already, particularly in India, Thailand, Australia and the Philippines, where inflation is elevated,” Moody’s said.

It said that central banks should play it by ear in raising interest rates. It warned that an early and rapid rise could bring economic growth to a stop, while a slow response could lead to capital outflows and currency depreciation.

Further, Moody’s said Asia-Pacific nations dependent on tourism like the Philippines should examine how China’s zero-COVID policy, which results in region-wide lockdowns, would affect their arrival numbers.

Last year China emerged as the third largest source of foreign arrivals for the Philippines with 9,674, only behind the United States’ 39,326 and Japan’s 15,024.

The government expects the economy to expand by seven to nine percent this year.