MANILA, Philippines — The war between Ukraine and Russia will impact not only oil prices, but also agriculture commodities and likely lead to weaker trade in the Philippines, according to international think tanks.
Oxford Economics and Capital Economics both warned of possible repercussions on global commodity prices, which would affect countries like the Philippines following Russia’s attack on Ukraine.
The price of Brent crude breached the $100 per barrel mark for the first time in seven years and economists are expecting this price range to persist for some time.
This would effectively put pressure on pump prices in the Philippines, a net importer of the commodity.
In an email to The STAR, assistant economist of Oxford Economics Makoto Tsuchiya said the Philippines would be adversely affected by the Ukraine-Russia conflict as global energy prices are on an uptrend.
“As a result, real incomes will be reduced and consumers will have less money to spend on other things, and therefore household spending will be hit,” Tsuchiya said.
“It will also likely lead to somewhat weaker trade so there will be a dampening impact on exports. Businesses also face higher costs, which they are unlikely to fully pass on given demand is still relatively weak,” he said.
In turn, this will weigh on profit margins and sentiment and investment may come in slightly softer than expected.
In a briefing late Thursday, Capital Economics maintained that it is uncertain how long the Ukraine conflict will persist, which means high oil prices are here to stay unless the whole situation is resolved quickly.
Caroline Bain, chief commodities economist, said expectations are for oil prices to gradually fall over the course of the year, but the conflict in Ukraine means high prices can be anticipated for much longer.
Apart from oil prices, the costs of industrial metals and agricultural commodities are also seen accelerating. Capital Economics sees a 20 to 30 percent increase in the global prices of agricultural commodities.
“Higher energy prices push up the cost of production of both metals and agriculture. Agri commodity prices are going to be higher for longer,” Bain said.
Among the country’s top merchandise trade with Ukraine and Russia are wheat, oil, iron and steel, electronics, and other agricultural products.
Bain also warned of possible damage to crops, which could lead to further price in spikes, especially as the bulk of Russian and Ukrainian agricultural exports pass through the Black Sea ports.
As oil prices soar and are already felt at the domestic front, the country’s economic team said the government would release some P3 billion in subsidies to cushion the impact.
Of this, P2.5 billion will be for the fuel subsidy of the Department of Transportation which will benefit some 377,000 public utility vehicle drivers.
Another P500 million for fuel discounts is also set for the Department of Agriculture to assist farmers and fisherfolk in production and transport costs of farm commodities.