RUSSIA’s invasion of Ukraine is sending shockwaves around the globe, including the Philippines, as it may disrupt prices and the supply chain of oil and key commodities. The war could also spook investors.

Steven Yu, president of Mandaue Chamber of Commerce and Industry, said the Russia-Ukraine conflict could affect the economic recovery of the country.

“The Russia-Ukraine tension will lead to inflationary pressures and possible interest rate hikes. But it depends on how it accelerates further and if any sanctions are thrown in by the North Atlantic Treaty Organization to Russia. The severity of the impact like an increase in crude and commodity prices like wheat, among others and rate hikes will determine the setback to our recovery efforts. We hope that it will not escalate further and will be settled soon,” Yu said.

Europe gets nearly 40 percent of its natural gas and 25 percent of its oil from Russia. Russia is the world’s largest supplier of wheat, and together with Ukraine, accounts for nearly a quarter of total global exports.

Ukraine, known as the “breadbasket of Europe,” sends more than 40 percent of its wheat and corn exports to the Middle East or Africa.

In a report, Trade Secretary Ramon Lopez sees minimal impact of the Russia-Ukraine crisis on Philippine trade.

Lopez said top merchandise trade with Ukraine and Russia includes wheat, oil, iron and steel, electronics and agricultural products.

“But its disruption in the prices and supply chain of oil and key commodities like wheat, iron ore, and the high degree of uncertainties if such (a) crisis worsens are the factors that can impact global recovery efforts,” Lopez said as quoted in a PNA report.

Holding off expansion

Jason King, president of King Properties, said the conflict between Ukraine and Russia will have a domino effect on global trade and companies may hold off planned expansions due to uncertainties.

“It is really a wait-and-see scenario. Given the situation, companies and multinational firms will probably prolong and hold off future expansions with other countries, uncertain of what is going to happen. It is not a direct impact on us, but definitely, it is something that will in a way affect us,” said King, noting that the tension may also impact remittances to the country.

There are at least 300 overseas Filipino workers in Ukraine.

Yu said the Philippine government has to deal with high oil prices and other inflationary measures and continue to pump-prime the economy.

“It has to maintain an accommodative monetary policy as we hope that the Federal Reserve will temper the hikes due to geopolitical risks,” he said.

Monetary policy

During its monetary policy meeting on Feb. 17, 2022, the Bangko Sentral ng Pilipinas (BSP) decided to maintain its key policy interest rate at two percent but it sees faster inflation until 2023.

The latest inflation forecasts for 2022 and 2023 are slightly higher, according to the BSP. The projected inflation path is expected to settle within the two to four percent target range over the policy horizon.

Moreover, the higher inflation path in 2022, attributed primarily to the higher domestic food and oil inflation, are reflective of the trends in the international commodities market. Nonetheless, imported oil and food inflation is projected to ease in 2023 as global supply chain disruptions are expected to dissipate, the central bank added.