Ukraine crisis could slow SE Asia recovery

The Ukraine-Russia conflict is expected to upend Southeast Asia’s recovery this year, analysts said, as global disruption in the supply of oil and grains is set to boost prices and dampen consumption.

While the region is not a major trade partner of Ukraine and Russia, analysts noted that Southeast Asian countries remain a net importer of oil, wheat and corn. Prices of these commodities have been rising in the past few days as Ukraine and Russia are major commodity exporters.

Ukraine is one of the world’s biggest exporters of wheat, corn and sunflower oil, while Russia is a leading exporter of oil, wheat and natural gas.

With supply tightening, importers have to scramble for other sources, spiking prices. International benchmark Brent crude oil surged to a seven-year high of over $109 a barrel on March 2 as the conflict intensifies. Malaysia’s palm oil futures rose to a record high of over 7,000 ringgit ($1,669) per metric ton. Australian premium white wheat prices rose $10 to $362 per metric ton, according to S&P Global Platts Analytics.

Nicholas Antonio Mapa, senior economist at ING bank, said faster inflation growth will limit the gains made by Southeast Asian economies which “are attempting to break out after the COVID-19 slump”.

“Central banks will likely resort to rate hikes to protect their vulnerable currencies, which in turn could sap some capital formation or investment momentum,” Mapa said.

Southeast Asian economies, once among the most dynamic in the world, have started recovering in the past few months thanks to COVID-19 vaccination programs that allowed them to gradually reopen their economies. Malaysia’s GDP grew 3.1 percent in 2021 — a turnaround from 2020’s 5.6 percent contraction. Officials of the region’s third-biggest economy project 5.5 to 6.5 percent growth for this year.

Wan Suhaimie Wan Mohd Saidie, head of economic research at the Kuala Lumpur-based Kenanga Investment Bank, said the Ukraine conflict might hurt “recovery momentum”.

“If oil prices as well as (prices of) other soft commodities like wheat or corn remain high it would definitely impact inflation because Malaysia imports wheat and corn mostly for animal feed apart from human consumption,” he said.

Khor Yu Leng, regional economist at the Singapore-based consultancy Segi Enam Advisors, said that while higher crude oil prices might boost Malaysia’s export revenues, those gains will be wiped out as the government has to spend more for fuel and food subsidies.

Khor said fertilizer prices might go up, boosting food prices further.

Thailand’s GDP rose by 1.6 percent in 2021 with Southeast Asia’s secondbiggest economy expected to expand 3.5 to 4.5 percent this year thanks to higher exports and the return of international tourists.

But Kobsidthi Silpachai, head of capital markets research at Bangkokbased Kasikornbank, said that as the conflict continues, the global tourism recovery will be further delayed as consumers are likely to be more cautious about their spending.

“This increases the probability of the Thai economy falling back into recession,” he said, alluding to the 6.1 percent contraction in 2020.

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said the biggest repercussion of the Ukraine-Russia conflict “is on the inflation side, particularly on higher oil prices. I think that it will spill over into more cost-push inflation for the Philippine economy.”