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.