High oil prices a manageable risk for Asia, says ADB
High oil prices a manageable risk for Asia, says ADB
Agence France-Presse, Manila
Sharp increases in oil prices in recent months pose a risk,
although a manageable one, for Asian economies as long as
governments use the right policies, the Asian Development Bank
said Tuesday.
"Asia remains particularly vulnerable to an oil shock because
of its high dependence on oil imports," said the report by ADB
economist Park Cyn-Young.
Asia produces 10 percent of world crude supply but consumes 24
percent, with consumption in China and India rising, adding to
the pressure on prices.
Asia's increased appetite for oil "is not a temporary
phenomenon," it said.
It said gross domestic product (GDP) of 10 Asian nations
including Japan, China and India, would suffer a 0.1 percentage
point reduction in 2004 and a 0.5-0.6 percentage point reduction
in 2005 if oil prices remain at about $40 a barrel.
Inflation would also be higher in many of these countries
particularly India, Indonesia, Malaysia, the Philippines,
Singapore and Thailand.
However, the impact of higher oil prices would not match those
of previous shocks since the world economy had become more
resilient to such fluctuations since 1973, it added.
Other developments could also help lessen the impact in Asia,
the ADB said, citing the weakening of the dollar against many
Asian currencies, higher levels of international reserves and
current account surpluses, and lower inflation in many countries.
"Asia's current economic background remains favorable compared
with previous oil shocks, making risks from an oil price increase
manageable," the report said.
"Government policies can help mitigate the adverse impact on
the economy," although such policies would differ from country to
country.
Monetary authorities should remain on guard for signs of
inflation, it said.
Countries with "managed floats" of their currencies could
"allow for more flexibility," while those with currency pegs
should allow for more "market-oriented reforms towards more
flexible goods and labor markets" to cope with the higher oil
prices.
Asian nations which are shifting from export- to consumption-
led growth should also push through structural reforms to boost
their investment climates by improving competitiveness,
productivity and corporate governance.
Rising oil prices could even be a "blessing in disguise" if
Asian nations implement policies that would increase energy
efficiency while lowering oil consumption, it added.