While Russia and Ukraine are not major ASEAN trading partners and investors, analysts think the impact of the current conflict could be much more than meets the eye.
ASEAN’s economy is expected to grow by 5.1% this year. However, the Russia-Ukraine conflict could slow this down and instead lead to rising inflation, particularly in food prices, as well as weaker purchasing power among consumers.
The region sources part of its agricultural commodities, such as fertilizers and cereals, from the warring countries. In a memo, Capital Economics said that most agricultural commodity exports leave from Black Sea ports, some of which have already been closed by Ukraine.
“Aside from the port issue, there is also the risk of damage to Ukraine’s crops in the wake of fighting on the ground. Given the scale and severity of the risks, we have also raised our near-term [price] forecasts for most agricultural commodities by around 25%,” the memo added.
In an interview with Al Jazeera, Trinh Nguyen, senior economist for Asia at Natixis, forecasts that economic sanctions on Russia, the world’s second-largest natural gas exporter and third-largest petroleum producer, will push energy prices in Asia even higher.
“Higher oil is a net negative for Asia because we’re net importers of oil. That will mean inflationary pressure and higher costs. That’s going to dampen consumer purchasing power,” Nguyen said.
Additionally, expected volatilities and rising oil prices may induce investors to flee to safety, resulting in an upside bias for safe-haven assets, particularly the US dollar, according to PublicInvest Research. The research house said that this could hurt the economies of emerging markets, such as those in ASEAN.
Meanwhile, Ukraine is a significant producer of neon gas and other raw material gases used in semiconductor manufacturing. The Business Times reports that this, coupled with the UK’s sanctions on high-tech imports to Russia, will strain the supply chain even more.
What this implies for Southeast Asia has yet to be seen, given that significant semiconductor companies have noted that the short-term will not see much impact. Malaysia will likely feel the first blow, as it has emerged as a global chip hub in recent years, after Taiwan, Japan, and South Korea.
Cybercrime will also be a major concern for vulnerable ASEAN companies. You may recall that in 2018, a proposed Russia-ASEAN cybercrime deal, supposedly supported by ASEAN governments, fell through. Just recently, a Russian cybercrime group announced its full support for the invasion and vowed to attack enemies of the Kremlin.
ASEAN governments have yet to issue a regional stand on the conflict, but some individual governments have already expressed their sentiments. Singapore and Indonesia have denounced the invasion, while Myanmar’s military junta is siding with Putin. Although Malaysia, the Philippines, and Thailand have not directly addressed the situation, they have emphasized their commitment to assisting their nationals in fleeing Ukraine. Vietnam, Russia’s closest trading partner in Southeast Asia, called for diplomacy and restraint.
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