SINGAPORE, Sept 10: El Niño is likely to pose a bigger inflation risk than a growth shock for ASEAN economies, with higher prices for 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, said in a note that she sees the Philippines, Indonesia and Thailand among the ASEAN economies with higher exposure to El Niño, while Malaysia and Vietnam face meaningful but more concentrated risks.
Higher food prices "can add to regional inflationary pressures, with imported inflation risks also rising considering most of this region are net food importers," she noted.
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She said apart from Thailand and Vietnam, major economies in the region are generally net rice importers, leaving the Philippines, Malaysia and Indonesia exposed to potential terms-of-trade shocks from higher rice prices.
She added that most economies in the region are large net grain importers, including ASEAN-6, and are particularly vulnerable to imported inflation pressures when global wheat and maize prices rise.
She said the extent of food inflation transmission would vary depending on the weight of food in consumer price baskets, import dependence and government intervention through measures such as subsidies and price controls.
The growth impact is expected to be more uneven and largely concentrated in agriculture. Indonesia, the Philippines, Thailand and Vietnam, which have relatively large agricultural sectors, are more vulnerable to production losses and weaker rural incomes.
However, she opined that agricultural exporters such as Indonesia, Malaysia, Thailand and Vietnam could receive some offset from higher commodity export revenues.
"The ultimate macroeconomic impact will depend not only on weather outcomes but also on policy responses, including food trade restrictions, stock releases and subsidy measures," she added.
