ASEAN-6: Assessing the impact of oil and geopolitics
- The challenging geopolitical situation is a fresh exogenous shock for ASEAN-6
- We assess the direct and indirect impact on the region,…
- … on trade, financial markets, inflation, and policy
- Direct trade exposure is small, but risks to inflation are material
- High oil prices result in terms of trade shock, some more than the others
We assess the impact of the war in Ukraine on ASEAN-6 in this note, through direct i.e., trade with Russia and Ukraine and financial market linkages and indirect, which is mainly via oil, besides other commodity markets. We discuss the regional implications, followed by each of the ASEAN-6 economies.
ASEAN-6’s direct economic impact via the trade channel is contained, in our view. In terms of direct trade, the region’s overall linkages with Russia and Ukraine are limited. ASEAN-6’s average export and import shares with Russia came in at just 0.4% and 0.6% of the total in 2021, respectively, while that with Ukraine was at a negligible 0.1% and 0.2%, respectively. The economic toll on ASEAN’s exports could come instead from a broader European slowdown, should the conflict be prolonged. Total oil import dependency from Russia is largely manageable, in our view. Thailand, the largest net oil importer among ASEAN-6, only bought ~5% of Russian oil in value terms, higher than most regional peers.
Indirect impact – elevated oil prices
Inflation is at most risk in the Philippines, Singapore, and Thailand, whilst countries like Indonesia and Malaysia have kept prices of commonly used variants of pump fuel unchanged since the start of the pandemic. Non-subsidised prices are being incrementally raised. With the fiscal strain likely to rise on such price intervention and subsidies, we expect persistently high oil prices to convince policymakers to pass on part of the increase on to the private sector. Besides cost-push pressures from oil, supply shortages and high food costs from cooking oil to wheat has also begun to lift inflation in the region (we discuss this in country specific notes), prompting us to revise up inflation in multiple economies.
For policy, a build-up in cost-push pressures from rising oil and food muddle plans to maintain a growth-supportive stance. Nonetheless, with economies still in the process of post-pandemic reopening and output gaps expected to narrow gradually, regional central banks are likely to lag the US Federal Reserve in the scale and speed of rate hikes – we discussed our PCA-driven approach to segregate inflation triggers in ASEAN-5: Evaluating key inflation drivers.
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