MANILA, Philippines — A protracted war between Russia and Ukraine would lead to further increases in fuel and commodity prices and worsen the trade balance of most economies in the Association of Southeast Asian Nations (ASEAN) +3 (China, Japan and South Korea) Region.
In its latest analytical note, the ASEAN+3 Macroeconomic Research Office (AMRO) said that since the start of the war in Ukraine, some ASEAN+3 economies have seen a decline in trade with Russia. .
“The decline in ASEAN+3 trade with Russia (and Ukraine) is manageable so far, but as the war drags on and sanctions intensify, shortages of critical goods would begin to be felt in some economies,” AMRO said.
He said the loss of trade with the two economies is not expected to be large, but could intensify existing deficits due to factors including supply shortages and pandemic-induced restrictions.
A ban on fuel imports from Russia, which supplies some ASEAN+3 countries including Japan, would also have ripple effects in the region.
Analysts believe that displacing even some of the demand currently served by Russia will further drive up fuel prices and affect other ASEAN+3 fuel-importing economies.
“High fuel prices will worsen the trade and current account balances of many ASEAN+3 economies,” AMRO said.
He said many ASEAN+3 economies except Brunei, Indonesia and Malaysia had fuel trade deficits ranging from 2% to 9% of gross domestic product (GDP). ) Last year.
While some economies have seen their fuel imports from Russia decline since the war, their spending on fuel imports has increased as fuel prices have risen.
If this continues, AMRO said many economies in the region are likely to see widening fuel trade deficits relative to GDP.
AMRO also said other commodity price hikes are unlikely to improve the trade balance of most ASEAN+3 economies.
However, some ASEAN+3 economies could benefit in specific categories from higher prices or trade diversion, if they are able to rapidly increase their exports.
Among those that would benefit are the Philippines in terms of nickel exports, China for its fertilizers, the Lao People’s Democratic Republic for maize, and Malaysia and Indonesia for palm oil.
“Beyond trade implications, rising prices are exacerbating global and regional inflation, with attendant risks to growth,” AMRO said.
He said rising energy prices were driving up imported inflation in the region.
Rising fuel prices are also impacting domestic food and catering prices, in part due to unfavorable weather conditions among major agricultural producers.
“Most worrying is a scenario of stagflation in Europe and the United States – as both are major trading partners in the region,” AMRO said.
“ASEAN+3 exports and GDP growth will not be spared if this materializes,” he added.