Inflation to deal biggest blow to Philippine economy, says Manulife

MANILA, Philippines — The Philippines is seen suffering the largest blow on inflation among economies in Asia Pacific, brought about by price pressures caused by Russia’s invasion of Ukraine, according to the second quarter outlook of Manulife Investment Management.

Manulife said the Philippines scored the lowest among all countries in Asia Pacific for its vulnerability to shocks brought about by the war between Russia and Ukraine.

According to Manulife, the Philippines, India and Hong Kong are the losers from inflationary tensions, while Singapore, New Zealand, Australia and Malaysia are set to benefit from rising prices.

However, Manulife said the Philippines, Indonesia, New Zealand and India appear to be the least exposed in the region to a liquidity crisis.

This was based on computation of the exposure of an economy based on foreign currency debt, private sector debt and debt servicing cost.

Manulife pointed out New Zealand, Malaysia, Indonesia, Australia and Vietnam can withstand the inflationary and liquidity risks posed by Russia’s attacks against Ukraine.

Likewise, it added these countries could even benefit from the crisis by outperforming their Asia Pacific neighbors through the war.

“As a net food, materials and energy importer, the Asia Pacific region is vulnerable to a reduced supply and spike in the prices of these key strategic resource commodities owing to the conflict in Ukraine,” Manulife said.

“We stress that the Asia Pacific region is not monolithic in nature, and the impact of the Russia-Ukraine conflict across the region will be uneven,” it added.

Manulife warned emerging economies in Asia Pacific to look out for the performance of their equity markets, as the global tightening in monetary policies led by the US Federal Reserve may cause secondary threats.

Manulife also said that central banks in the region should watch out for stagflation – a scenario where economic growth slows as inflation speeds up – as they lack the measures to respond to cost-push or supply-driven inflation.

Emerging markets like the Philippines also need to address the added complication of preserving their external stability.

However, Manulife expects policymakers in Asia to take it slow in raising interest rates even as the Fed began its

tightening to weather inflation. In effect, the insurer projects that regional bonds will benefit from the depreciation of local currencies.

The Bangko Sentral ng Pilipinas has retained its policy rate at a record-low of two percent to support the consumer and firms recover from the pandemic.

This despite inflation jumping to a six-month high of four percent in March from three percent in February due to price surges in basic needs like food, housing, water, electricity, gas, fuel and transport.