Oil price hike will cut Asian growth: ADB

Oil price hike will cut Asian growth: ADB

Mynardo Macaraig, Agenece France-Presse, Manila

Higher oil prices, if sustained, could sharply cut economic
growth in Asia and trigger spikes in inflation and interest
rates, the chief economist of the Asian Development Bank (ADB)
said on Wednesday.

Economist Ifzal Ali also warned that even if geopolitical
uncertainties pushing prices higher were resolved, growing demand
would still keep oil at a floor price of between US$33 to $36
per barrel.

Among oil-importing economies in the region, China, Hong Kong,
India, South Korea, Malaysia, the Philippines, Singapore and
Thailand would be the worst hit, the ADB said.

"If oil prices are going to persist at $50 per barrel, there
are going to be some important downsides that are going to
result," Ali told AFP.

Higher oil prices would cause cost-push inflation which in
turn will result in "high interest rates in all the countries in
the region."

This will then undercut household consumption which has been
fulling growth in many Asian countries.

More troubling is the possibility that higher inflation and
interest rates could "snuff out" the recovery in business
investment that has taken place in Southeast Asia this year, Ali
said.

His remarks came after crude oil futures prices surged above
the psychological $50 per barrel level on Tuesday.

Ali said that because of their high foreign exchange reserves,
Asian countries would probably not suffer liquidity problems even
if oil prices remained high.

At the same time, these countries should make "major
structural changes regarding the efficiency of energy use," to
ensure they remain competitive.

Using a baseline of $30 a barrel, the ADB said in a recent
report that a sustained rise of $10 a barrel above that mark
would see developing Asia's gross domestic product (GDP) growth
pared back by 0.8 percentage points this year. Inflation would
rise 1.1 points and the trade balance would swing to a deficit
equal to 0.4 percent of total output.

Under the bank's worst-case scenario of a sustained $20 price
rise above the baseline estimate, regional growth would be
trimmed by 1.5 percentage points and inflation would rise 2.0
points.

For Thailand, a sustained $10 price rise would cut 2.2
percentage points off its estimated GDP growth for this year and
push up consumer prices by 1.5 percent.

The Philippines would be the next hardest hit, with 1.9
percentage points lopped off its GDP growth rate and a 1.4
percent increase in consumer prices, the ADB report said.

China would see a 0.8 percentage point reduction in its
projected growth rate and a 0.5 percent increase in consumer
prices.

Oil-rich Indonesia would only see a 0.1-percentage point cut
in its growth rate but Ali warned that the high fuel subsidies in
that country could unbalance the budget if oil prices remained
high.

The ADB advised Asian governments to consider phasing out fuel
subsidies and adopting measures to boost efficiency. They should
also consider incentives to develop and use alternative energy
resources.

Asian economies are more energy intensive and less energy
efficient than industrial countries, and are growing faster than
the rest of the world, the ADB warned in its report.

While the region produces 11 percent of total world oil supply
it consumes about 21 percent, meaning that it now imports more
than 44 percent of its oil consumption.