The Philippines’ strong macroeconomic fundamentals, coupled with its limited trade links to Russia and Ukraine, will insulate the economy from any impact of the continuing war between the two European countries, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Monday.
Diokno said in a statement to reporters the BSP was carefully monitoring the pass-through effect of international prices to domestic inflation to calibrate appropriate actions.
“That said, initial conditions matter. Some countries are starting from high levels of inflation, others at moderate levels, and others are within the range forecasts,” he said.
He cited as examples the US inflation which reached 7.9 percent, the United Kingdom’s at 5.5 percent and the Euro area’s 5.1 percent. Argentina had the highest inflation at 50.7 percent. Domestic inflation at 3.0 percent was well within the forecast range of 2 percent to 4 percent, he said.
“There is greater sense of urgency to act for countries with high inflation. On its Feb. 17 policy meeting, based on data available at that time, BSP staff projected that average inflation will be 3.7 percent in 2022 and 3.3 percent in 2023—both within BSP’s target range,” Diokno said.
He said with the Russia-Ukraine conflict, conditions changed.
“Doing sensitivity analysis, we arrived at the following forecasts: if average world price of oil is $95 per barrel, domestic inflation will be 4.0 percent; if $120 per barrel, it will be 4.4 percent; and if $140 per barrel, it will be 4.7 percent,” he said.
Diokno said in terms of trade, direct links of the Philippines with Russia and Ukraine were negligible. In 2021, exports to Russia amounted to $120 million, or about 0.2 percent of the Philippines’ total exports. For Ukraine, total exports were a measly $5 million. Other economic linkages through investments, remittances and tourism were also limited.
“In brief, the Philippines’ geographic distance and limited economic link to both Russia and Ukraine, as well as its strong macroeconomic fundamentals, could insulate the domestic economy during the current risk-off episode,” Diokno said.
Rizal Commercial Banking Corp. chief economist Michael Ricafort earlier said the Philippines might incur a new record trade deficit of $50 billion this year as prices of global commodities led by oil, natural gas, wheat, nickel and copper posted record highs as a result of the war in Europe.
“Trade deficit estimate for 2022 would be wider around -$43 billion to -$45 billion, after -$43.1 billion in 2021 [compared to the record trade deficit of -$43.5 billion posted in 2018],” Ricafort said in a report.
“However, in view of Russia’s invasion/war with Ukraine since Feb. 24, 2022, the country’s trade deficit could widen towards -$50 billion in view of the sharp increase in global oil prices to new 13.5-year highs [since July 2008] as well [as] sharp increase in the prices of other imported global commodities such as wheat/flour, soybeans, corn, other grains, metals, among others; all of which would increase the country’s oil/commodity import bill in the coming months,” Ricafort said.
He said measures to further re-open the economy towards greater normalcy, especially in view of the proposal by the economic team to ease the nationwide Alert Level to the lowest 1 and additional measures to further re-open the economy would also lead to increased economic and importation activities.
The economy is expected to grow stronger this year by 7 to 9 percent, following a 5.6-percent expansion in 2021.