By Jorgelina do Rosario

LONDON (Reuters] – The Russia-Ukraine War will make it difficult for emerging economies in the coming quarters, Atsi Shath, the global head of research and strategy at Moody’s Investors Service said Thursday.

She said that although the general picture looks grim, exporters of commodities will have better results than countries and companies.

The ratings agency forecasts in a report that nearly 30% of rated non-financial companies in emerging markets would face “heightened credit risks” in a worst-case scenario in which Russia’s invasion of Ukraine triggers a global recession and liquidity squeeze, including a suspension of energy trade between Europe and Russia.

Sheth stated that companies serving consumers will likely suffer more as inflation is going to limit their pockets.

According to Moody’s research, Asian companies are more exposed to disruptions in supply chains and restricted access to financing than Latin American corporations.

It found that 8% of emerging market companies would be at greater credit risk in a more severe situation, such as when higher interest rates, inflation, and commodity shocks crimp global growth by 2023.

Supply chain disruptions could continue to affect the automotive manufacturing sector.

Sheth also stated, at sovereign level, that credit agencies were closely following elections in emerging nations this year. Sheth explained that there was a possibility of political change if people are pressed for changes amid financial and economic hardship.

Colombia’s first-round presidential election was held on May 29, and Brazil is scheduled to vote in October.

When a democracy is replaced by an authoritarian government, credit risk rises. Moody’s estimates that 25 percent of these instances are associated with defaults on country’s bonds.

“This is how credit risk turns into social risk,” she stated.

Sheth said that countries who have maintained a credible monetary policy to combat inflation during the Russia-Ukraine conflict and throughout the pandemic will be less at risk over the medium term.

Sheth stated, “Take a look in Turkey — the markets are kind of punishing (it)”.