Kathmandu [Nepal], September 11 – El Niño is likely to pose a greater inflation risk than a growth shock for Southeast Asian economies with higher prices of rice, wheat, maize and vegetable oils expected to be the main channels of impact, OCBC Group Research said on Wednesday.
Lavanya Venkateswaran, senior ASEAN and India economist at OCBC, said the Philippines, Indonesia and Thailand face relatively higher exposure to El Niño while Malaysia and Vietnam also face significant but more concentrated risks.
Higher food prices could add to regional inflationary pressures as many economies in the region are net food importers raising the risk of imported inflation, she said.
Thailand and Vietnam are among the exceptions in rice trade while the Philippines, Malaysia and Indonesia could face terms-of-trade pressures from higher rice prices. Most major ASEAN economies are also large net importers of grains leaving them vulnerable to increases in global wheat and maize prices.
The impact on food inflation will vary depending on food’s share in consumer price baskets, import dependence and government measures such as subsidies and price controls.
The growth impact is expected to be uneven and concentrated largely in agriculture. Indonesia, the Philippines, Thailand and Vietnam could face production losses and weaker rural incomes because of their relatively large agricultural sectors.
However, agricultural exporters including Indonesia, Malaysia, Thailand and Vietnam could partly offset those effects through higher commodity export revenues.
Venkateswaran said the overall economic impact would depend on weather conditions as well as policy responses including food trade restrictions, stock releases and subsidies.
