The impact of the Russia-Ukraine war on the economy will likely turn out mild amid heavy election spending in the first half of the year as well as growing business confidence and robust earnings, according to a report released yesterday.
According to the latest issue of the Market Call, the conflict has exacerbated the crude oil and commodity price spiral and will likely bring domestic inflation above the two to four percent target of the Bangko Sentral ng Pilipinas.
“The Russian invasion of Ukraine, which resulted in sky-high crude oil and commodity prices, may have dampened the inflation and economic outlook of the country, but domestic demand fueled by the robust recovery
and heavier election spending in H1 will likely offset much of the negative impact,” the report said.
“Inflation may speed up to four percent by March, but the early food prices slowdowns should partly cushion future increases. We expect monetary policy to remain unchanged to favor growth until Q4 at the earliest,” it added.
The report said the dollar-peso rate, which breached P52 to a dollar in early March, will remain under pressure until the Russia-Ukraine conflict gets some reasonable form of resolution.
“With inflation likely to hit five percent by May, driven by unabated surge in crude oil and key commodity prices, and the Fed expected to accelerate its policy rate hikes in H1, longer tenor bonds may not be so attractive in Q2 for ordinary investors,” the report said.
“With the Russia-Ukraine conflict on the balance and the extremely elevated crude oil prices spilling over into prices of other goods and services, the investors stance appears justified. An end of the conflict and sanctions, possibly in Q3 or later, would help turn the bond markets around,” it added.
Last year, the Philippine economy expanded by 5.6 percent, posting a rebound from the pandemic- and lockdown-induced 9.6 percent contraction in 2020.
Growth targets for the medium-term are seven to nine percent for 2022 and at six to seven percent by 2023 and 2024.
