The Russia-Ukraine conflict has caused a storm across the commodity markets, triggering steep price increases for both food and energy. Brent oil prices are up 40% this year, and some agricultural commodities, such as corn, wheat, and vegetable oils, have seen similarly significant price spikes of up to 50%. There are various ways this situation could play out, but S&P Global Ratings believes that commodity prices are most likely to stay elevated for some time.
What this means for emerging markets (EMs) in terms of their external vulnerability depends on the balance of their food and energy imports and exports (see chart 1). The EMs most vulnerable to the surging prices are significant net importers of both food and energy, while those with sizable food exports and modest energy imports stand to benefit.
Chart 1
On The External Side, Emerging Economies Are Generally More Vulnerable To Higher Energy Prices Than Higher Food Prices
This is because, first, two-thirds of the EMs in our sample of 35 are net energy importers, while around half are net food exporters. Second, food-related trade deficits are generally smaller than energy-related trade deficits. In 2019, net food imports stood at 2.0% of GDP for a median net food-importing EM, while a median energy-importing EM ran a net energy trade deficit of 3.5% of GDP. The size of the deficit in a particular year depends on the relevant prices, but this finding holds true over time. Note also that in 2019, the average Brent oil price was around $65 per barrel (/bbl). Current oil prices exceed $100/bbl, meaning net importers are running larger energy trade deficits.
The Most Vulnerable Emerging Economies Are Significant Net Importers Of Both Food And Energy
Lebanon, Jordan, and Tajikistan are the most vulnerable economies in our sample from a balance-of-payments perspective, spending more than 10% of GDP on energy and food imports (see chart 1 above). Tunisia's food and energy imports are also significant, mainly driven by energy. Egypt spends relatively less on importing energy, but is highly exposed to rising food prices.
Most EM energy exporters, such as Angola, Saudi Arabia, and Qatar, (the upper left quadrant of chart 1), import food on a net basis, but their energy export revenues dwarf the amount they spend on food, so these economies benefit from booming commodity prices.
Many emerging economies import energy, but export food, such as South Africa, Hungary, and Thailand (lower right quadrant). For most, net food exports are lower than net energy imports, but this helps mitigate the impact of higher energy prices. For many Latin American economies, for example Argentina, food exports are sizable, while energy imports are modest, so these economies are benefiting from the commodity price boom.
Malaysia and Indonesia are also benefitting, as, along with Brazil, they are the only three economies in our sample that are net exporters of both food and energy (upper right quadrant).
Higher Food Prices Are A Bigger Issue Than Higher Energy Prices For Households
Households in emerging economies spend much more on food than on energy (see chart 2), and therefore food price increases are having a much more negative impact on their budgets than energy price increases of the same magnitude. That said, higher energy prices feed through to producer prices, both domestic and global, and then at least partly to core consumer prices.
Chart 2
Some Emerging Economies In The Middle East And North Africa (MENA) Region Are Vulnerable To Food-Supply Disruptions
This is particularly true of wheat, because Russia and Ukraine are the largest exporters of wheat to the MENA region. Egypt is especially vulnerable, as it is the largest wheat importer in the world, and Russia and Ukraine together account for 70% of its wheat imports. The share of wheat imports from Russia and Ukraine is also significant for other economies in the MENA region, including Jordan, Lebanon, Oman, Saudi Arabia, and Tunisia.
Rising energy and food prices and supply disruptions are putting pressure on EM governments to cushion the blow for domestic consumers and producers and prevent social unrest, and many governments in emerging economies have already announced measures. However, many EM economies' fiscal space is more limited after two years of COVID-19-related fiscal support, and the measures risk worsening their fiscal dynamics.
This report does not constitute a rating action.
| Lead Economist: | Tatiana Lysenko, Paris + 33 14 420 6748; tatiana.lysenko@spglobal.com |
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