ASEAN's Ong says oil above $60 may cut growth to 4.5%

ASEAN's Ong says oil above $60 may cut growth to 4.5%

Sara Webb, Bloomberg/Jakarta

Economic growth among members of the Association of Southeast Asian Nations (ASEAN) may slow by as much as 1.5 percentage point this year if the price of oil remains above US$60 a barrel, said Secretary-General Ong Keng Yong.

Ong said ASEAN economies may expand as little as 4.5 percent this year, with high oil prices also increasing the cost of the subsidies their governments provide to make fuel affordable.

"ASEAN member countries are horrified by such a high oil price," he said in an interview with Bloomberg in Jakarta on Aug. 16. If the oil price stays above $60 a barrel "there will be a net negative impact on ASEAN."

Crude oil prices that have gained 36 percent in the past three months have stunted consumer spending and eroded growth in countries including Thailand and the Philippines. Indonesia, Southeast Asia's biggest economy, expanded at a slower pace for a second straight quarter in the three months ended June, the government said on Aug. 15.

"The higher oil price represents the biggest single cloud on the horizon," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. "It squeezes government budgets and while it's better to trim subsidies so people face the true market price for fuel, that will squeeze household spending."

The economies of ASEAN's 10 members had been forecast by the Asian Development Bank (ADB) to expand 5.7 percent in 2005, Ong said in a speech in Siem Reap, Cambodia in July. ASEAN economies grew 6.2 percent last year.

With crude oil trading above $60 a barrel, regional growth may be cut by between 1 and 1.5 percentage points to as low as 4.5 percent this year, Ong said in the interview. "It will be a rough ride," he said. "Our growth will go down and we will have less prosperity."

Crude oil for September delivery reached a record $67.10 a barrel in New York on Aug. 12. The price rose as much as 50 cents, or 0.8 percent, to $63.77 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $63.69 at 1:10 p.m. Singapore time.

Goldman Sachs Group Inc., the third-biggest U.S. securities firm by market value, raised its oil forecast for 2006 to $68 a barrel and said prices will stay at about $60 for several years because companies are not investing enough to boost supply.

Merrill Lynch & Co., the world's No. 2 securities firm, raised its oil price forecast for 2006 by 24 percent to $52 from $42 a barrel, citing limited spare production capacity and rising demand.

Ong said higher oil prices are leading to bigger fuel subsidy bills for some of ASEAN's biggest economies. ASEAN includes Thailand, Malaysia, Singapore, Brunei, Cambodia, Myanmar, Laos, Vietnam, Indonesia and the Philippines.

"You can see it affecting Indonesia already, which was a net exporter and is now a net importer of oil," Ong said. "You can see it in Thailand where the prime minister is worried about growth."

Indonesia's $258 billion economy grew 5.5 percent in the second quarter from a year earlier, after expanding a revised 6.2 percent in the first, the government said on Aug. 15.

Indonesian President Susilo Bambang Yudhoyono on Aug. 16 almost doubled the government's fuel-subsidy forecast for this year to as much as Rp 140 trillion (US$14 billion) because of rising crude oil prices.