Asian countries should work together to offset Ukraine impact, experts say

The indirect impact of the Russia-Ukraine conflict on food and energy will affect countries worldwide, making it important for Asian nations to enhance trade cooperation and complement each other, experts said.

Henry Chan, visiting senior research fellow at the Cambodian Institute for Cooperation and Peace, said the high energy and food prices will depress consumer spending, while sanctions on Russia will hurt the EU's economy. This will eventually affect Asia's trade, since the EU is a major trading partner.

Chan sees a "natural substitution effect" amid the current conflict in which Asian countries, prompted by disruptions, cooperate on developing regional supply chains. This effect will enhance the complementarity among Asian economies, especially with the Regional Comprehensive Economic Partnership taking effect this year.

Chan said "the most important thing" for Asian countries right now is to deepen such complementarity.

He cited the example of Southeast Asian countries importing cellphones from China instead of Western countries, as they did in the past. This kind of move would help develop a more complete supply chain within the region and mitigate the impact of events such as the Russia-Ukraine conflict.

The ongoing conflict and Western sanctions on Moscow have led to disrupted supply chains and rising food and energy prices.

"Because of the sanctions, every country's trade with Russia is affected," said Chan, adding that the moves to remove Russian banks from the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, and to freeze Russia's foreign reserves, are alarming.

The impact can already be felt in Asia. For example, rising energy prices have been one of the biggest factors affecting South Korea's trade performance, and the country saw a trade deficit in April for the second consecutive month.

In April, South Korea's trade deficit widened to $2.66 billion from $115 million recorded in the previous month, according to data from the country's Ministry of Trade, Industry and Energy.

South Korean exports increased 12.6 percent year-on-year to $57.69 billion, while imports rose 18.6 percent to $60.35 billion, with spending on crude oil, gas and coal nearly doubled to $14.81 billion compared with the same period last year.

For many countries in Southeast Asia, trade balances with Russia and Ukraine have been heavily affected by the conflict and related sanctions.

In Indonesia, trade balances with Russia and Ukraine were in deficit due to the conflict, according to Indonesia's state-owned Antara News Agency. The trade deficit with Russia, in particular, reached $204.6 million between January and March, compared with a surplus of $42.2 million during the same period last year.

As for Thailand, a net importer of oil, exports are unlikely to be the main economic contributor this year as the Thai economy has seen indirect impacts such as inflation and soaring global energy prices, Kobsak Pootrakool, senior executive vice-president of Bangkok Bank, was quoted by the Bangkok Post as saying on April 18.

Supply disruptions

Juthathip Jongwanich, associate economics professor at Thammasat University in Thailand, said the economic slowdown could be more pronounced outside of Asia. She forecast continued supply chain disruption from the Russia-Ukraine conflict and the sanctions.

A case in point is that exports by many Asian countries, including China, Singapore and Malaysia, continued to see double-digit growth in March. Juthathip said this makes trade cooperation among Asian countries more important, and she warned against protectionist sentiment as that would cause more price hikes and supply shortages.

Juthathip said: "Enhancing cooperation concerning non-tariff measures, services trade, as well as enhanced digital trade or trade facilitation, are crucial to mitigate the challenges brought by the Russia-Ukraine conflict."

She added that cooperation beyond Asia will also be key to helping create economic resilience.

Chan said China, the major trading partner for many countries, "can help regional trade cooperation by keeping its economy stable".