S&P Global Ratings said a surge in energy prices due to the Russia-Ukraine conflict could deal a ‘trade-of-trade’ blow to large net energy importers such as India, resulting in impact on current account balances and domestic consumption and investment . Wednesday.
High retail inflation will also affect monetary policy and reduce economic growth and put pressure on some bank borrowers in countries such as India, the rating agency said in a note on the impact of the Ukraine conflict on Asia, the energy profiles of the countries. is linked to.
“For the Asia-Pacific, Ukraine conflict’s greatest risk is market volatility and high commodity prices; emerging economies with large energy imports are most at risk,” noting that the continent’s revenues, investments or supply chains are at risk. The ‘direct exposure’ to Russia or Ukraine in the case was limited.
S&P said the conflict, or further extension of sanctions, could “severely damage investor sentiment” and prompt them to seek haven alternatives, resulting in capital outflows from emerging markets, and asset and Currencies have an effect.
“Very high energy prices and volatility could put pressure on the currencies and asset markets of many Asia-Pacific countries. This pressure will be strongest where higher energy prices put pressure on inflation targets such as India, the Philippines, Korea and Thailand,” It warned that this could also lead to a huge current account deficit for India.
“These risks emerge when the US Federal Reserve prompts several major central banks to raise policy interest rates,” S&P said. “Traders will react adversely to large current account deficits in emerging markets. Clear examples are India and the Philippines,” it added.
S&P noted that higher energy prices could trigger trade shocks for net energy importers such as India, where import prices rise faster than export prices. This, it added, will affect the current account balance and real household consumption and investment.
Risks to growth and inflation could slow sovereign debt reforms, and although the S&P expects regional GDP recovery to continue, the conflict will slow the pace of the rebound. “Governments should still be able to rein in the fiscal deficit meaningfully, although a full return to pre-COVID fiscal performance will take longer,” it concluded.