MANILA, Philippines — The Philippines should brace for longer repercussions of the Russia-Ukraine war as commodity price shocks affected global trade patterns that will likely keep costs elevated in the next two years.
In its semi-annual Commodity Markets Outlook report, the World Bank said the impact of soaring commodity prices, especially food and oil, could last until 2024.
The ongoing global tension, which has reverberated across economies and resulted in more expensive commodities, is seen altering trade patterns, production and consumption.
The Washington-based multilateral lender said this would keep prices at historically high levels through the end of 2024.
It said the Philippines is not exempted from the impact of war, being a net importer of oil. The country is already feeling the hit as local pump prices continue to rise and inflation hovered at the four percent level in March.
The World Bank said the increase in energy and food prices has been the largest global commodity shock since the 1970s.
“These developments have started to raise the specter of stagflation. Policymakers should take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy,” it said.
Based on its outlook, energy prices are projected to rise by more than 50 percent this year before easing in 2023 and 2024.
On the other hand, non-energy prices, including agriculture and metals, are seen increasing by almost 20 percent in 2022 before moderating in the next two years.
Despite the expected easing in 2023 and 2024, commodity prices are expected to remain well above the most recent five-year average. Worse, prices could go up further if the war is prolonged.
Local economists maintained that if the war drags on, it would keep prices at high levels and stall the country’s growth momentum.
In an email exchange, ING Bank senior economist Nicholas Mapa said the Philippines is one of the countries that would bear the brunt of scarred supply chains and rising costs, especially on food, as this accounts for almost 40 percent of the inflation basket.
“Past episodes of inflation breaches have included a food price spike, an energy price boom or in most cases, both. We may have to brace for one this year,” Mapa said.
“Surging food inflation will hit household consumption hard, sapping precious purchasing power as Filipinos scrimp on discretionary items to secure expensive staples,” he said.
Mapa said higher food costs on top of elevated transport expenses would also drive the clamor for wage adjustments, which is just one of the many second-round effects that could surface in the near term.
Even if the war is resolved sooner, Rizal Commercial Banking Corp. chief economist Michael Ricafort said this is not a guarantee of immediate decline in global commodity prices.
“Damaged infrastructure in Ukraine and the needed reparations could potentially delay the resumption of grain exports such as wheat and corn to the global market,” Ricafort said in another exchange.
Mapa said the country needs to brace for the one-two punch of higher food and energy costs, which will weigh on the growth outlook for the year.
Higher food inflation will eventually result in a slowdown of investment outlays.
“As households struggle to make ends meet, plans for expansion are put off until incomes stabilize. Meanwhile, the policy rate hikes induced by inflation breaches will then make borrowing costs less affordable, sapping even more pace from investment outlays,” Mapa said.
Ricafort also explained that for every $30 per barrel increase in global oil prices, as much as $4.5 billion is added to the country’s oil import bill per year. This is equivalent to up to one percent of gross domestic product (GDP).
“Additional oil import expenses are about one percent of GDP that would be a drag on growth and what could have been otherwise spent by consumers and businesses to boost economic activities,” he said.
Further, the World Bank said the continued increase in food and energy prices is taking a significant human and economic toll and it will likely stall progress in reducing poverty.
The multilateral lender noted that a sharp rise in input prices could lead to a reduction in food production, particularly in developing economies such as the Philippines.
The World Bank urged governments to act promptly to minimize the war’s impacts on their citizens and the global economy as a whole.
It called for targeted safety net programs such as cash transfers, school feeding and public works projects rather than food and fuel subsidies.
The World Bank said priority should be given to investing in energy efficiency, including weatherization of buildings.
It also called on countries to accelerate the development of zero-carbon sources of energy such as renewables.