The Ukraine war adds to inflation and supply chain risks facing an emerging Asia attempting to break out of the COVID-19 slump, the Organization for Economic Cooperation and Development warned on Tuesday.
In a new report, the OECD projects that the gross domestic product of emerging Asia — China, India and the 10 members of the Association of Southeast Asian Nations — will grow 5.8% this year, following a 7.4% expansion in 2021 and a 0.8% contraction in 2020.
The growth is expected to be driven by various factors, such as infrastructure spending and border reopenings. But Mathias Cormann, OECD secretary-general, told a webinar that “significant uncertainty” remains, citing the war as well as the risk of new coronavirus variants.
“If we look at the impact of the war, it is causing a strong supply shock globally, which adds further to inflationary pressures and disruptions that had already been triggered by the COVID-19 pandemic,” he said. “The moves in commodity prices and financial markets since the outbreak of the war could also put the recovery of Asian economies at some risk.”
Cormann pointed out that the Ukraine conflict also has a significant negative impact on confidence, which could hurt private consumption and business investment decisions.
“Growing uncertainty could increase capital flow volatility in Asian countries and elsewhere,” he said. “Governments in the region, therefore, need to continue to implement effective macroeconomic and structural policies to safeguard their economies and to minimize the impact of these developments on consumers and businesses.”
In the webinar, experts from the emerging economies shared their views on the major economic risks.
Destry Damayanti, senior deputy governor of Bank Indonesia, the central bank, said that the effect of the Ukraine war would be “mixed” in Indonesia, as the conflict has pushed up commodity prices for the resource-producing nation. “We are still exporting a lot of commodities,” she said. “As a result, our trade balance in the last few months increased quite significantly.”
Against the backdrop of the multiple economic risks, the OECD report points out that a sustainable recovery requires broader financing options, including new methods such as green and social bonds.
Bond markets are still underdeveloped in some economies, the report notes, saying that “policies that improve the overall level of financial literacy could promote more participation of individual investors, a key to bolstering the competitiveness of bond markets in the region.”
The OECD says the yearly report, titled “Economic Outlook for Southeast Asia, China and India 2022,” is designed to promote policy dialogue between the emerging Asian economies and OECD members. In Asia, only Japan and South Korea belong to the 38-member group.