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60-dollar oil could hurt Asia's confidence: economists
(Agencies)
Updated: 2004-10-25 09:38
As oil prices keep setting new record highs, there are growing concerns that
Asia's energy-hungry economies can no longer continue absorbing the impact with
crude creeping toward 60 dollars a barrel.
The risk of stagflation -- persistently high inflation and low economic
growth -- is seen as low so far but 60-dollar oil could puncture business and
consumer confidence in the region, economists told AFP.
"I think it will have an impact... sentiment will be affected," said Nizam
Idris, deputy head of research at IDEAglobal.com.
"As a consumer, you will be careful with your expenditures. It will have a
psychological effect which will filter through to decision-making from consumers
to producers," he said.
Julian Jessop, the chief international economist at London consultancy
Capital Economics, also agreed crude prices at 60 dollars a barrel would deal a
psychological blow to the region.
"There is no doubt 60 dollars would have a significant impact.
Psychologically, clearly a price that high is going to be a big problem," he
said.
Despite the warnings, Jessop said Asia was still in a better position to cope
with higher oil bills than other regions because its economy is in stronger
shape.
"I think paying a bit more for oil is not going to be the end of the world
for Asia where growth has been strong for some time," Jessop said.
"Asia can afford to pay more for its oil compared to, say, Europe where the
economic recovery is still very weak," he said.
Analysts say crude prices are now within striking distance of 60 dollars a
barrel after New York's main contract, light sweet crude for delivery in
December, set a record of 55.50 dollars in New York trading Friday and finished
at a record settlement of 55.17 dollars.
"I certainly wouldn't rule out 60 dollars in the current environment.
Virtually anything is possible," said Daniel Hynes, a Melbourne-based energy
analyst at ANZ Bank.
Unusually low US heating oil stocks ahead of the northern hemisphere winter
and insatiable demand from a still booming Chinese economy are among the key
reasons behind the sharp spike in crude prices in recent weeks.
Industry estimates put Asia's production at just 10 percent of the world's
crude supply, but the region consumes 24 percent.
China, which once produced all its oil needs, is the region's largest oil
importer and has overtaken Japan as the second largest consumer of oil in the
world, just behind the United States.
The country currently relies on imports for one-third of its supplies and in
turn accounts for about seven percent of world oil demand, with both figures
expected to rise.
While the Chinese economy has so far withstood the onslaught of surging oil
prices -- latest figures show gross domestic product grew a solid 9.5 percent in
the nine months to September -- authorities have warned of the need to prepare
measures to meet the challenge.
Australia's Treasurer Peter Costello also sounded warning bells, citing high
crude prices among the biggest risks to the economy.
"Sure we can handle it for three months or six months, but if that were to
continue for 12 months or 18 months that could have a very material effect on
global growth, it could have a very material effect on Australian growth,"
Costello said.
In late September, when oil prices were hovering around 50 dollars per
barrel, the International Monetary Fund(IMF) said economic growth in developing
Asian countries was likely to average 7.3 percent this year.
But it said 2005 growth was likely to moderate to 6.5 percent, down 0.3
percentage point from the previous estimate, due to worries over oil prices and
a possible Chinese slowdown.
The IMF said global expansion was likely to continue to weaken for several
quarters partly as a result of the sharp rise in oil prices.
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