Regional economists expect underlying momentum to continue
Oil prices won't slow growth in Asia
May 25, 2004
By Karl Malakunas
Singapore - Asia's economies would continue to power ahead this year despite expectations that oil prices will remain near their record highs, regional economists said.
With oil prices an average of nearly 30 percent higher this year compared with last year, economists said it was inevitable that economic growth rates would slow marginally and inflation would creep up.
But warnings from the Group of Seven (G7) finance ministers on Sunday that the brakes would be slammed on if oil prices continued at current levels appeared to be overstated - at least in Asia.
Standard Chartered Bank's Hong Kong-based regional economist, Mike Moran, said: "The underlying momentum of growth in Asia is very strong."
He cited China's economic strength as one vital factor.
Moran said the situation was a lot less serious than the oil price shocks of the 1970s, which sent Asian - and the world's - economies into a tailspin.
"The world is a different place from then" he said.
"The economic model that Asia is working in is far more productive and competitive. Asia is far more resilient."
Nizam Idris, a Singapore-based regional analyst with research house Ideaglobal, predicted an average 0.7 percentage point would be cut from Asia's economic growth forecasts this year, excluding Japan, if oil prices remained at current levels.
But he said that with first-quarter economic figures already coming in higher than expected, strong Asian growth predictions for this year would probably be maintained.
The World Bank said last month that east Asia's economies would grow 6.3 percent this year, compared with 3.7 percent globally and 4.6 percent for the US.
In Japan, the world's second-biggest economy, the surge in oil prices this year has been met with less anxiety than it was 30 years ago.
Hiroshi Murayama, the deputy director of the cabinet office's economic research division, said: "The impact of high oil prices on Japan has lessened since the [1970s] oil crisis, as it has shifted energy sources and cut the share of oil imports in gross domestic product."
Crude oil accounted for 40.2 percent of Japan's primary energy in 2002, down from 66.7 percent in 1976, as the nation's power companies have expanded the use of nuclear power and liquefied natural gas.
Taiwan's official council for economic planning and development predicted that, with Taiwanese inflation still under 1 percent, the short-term impact of high oil prices would be kept under control.
PJ Chen, the deputy director of the council's economic research department, said: "The effect of higher oil prices on domestic consumption should be limited."
Debate over the impact high oil prices will have on Asia's and the world's economies were fuelled by the G7's appeal on Sunday for all oil producing nations to boost output.
G7 financial leaders said in New York that "low oil prices would be a benefit to the whole world economy" as they welcomed Saudi Arabia's call on Friday for Opec to raise output by at least 2 million barrels a day.
The G7 leaders said: "We now call on all oil producers to provide adequate supplies to ensure that world oil prices return to levels consistent with lasting global economic prosperity and stability, in particular for the poorest developing countries."
Reuters reports that Opec ministers said yesterday they would not be hurried into a decision on higher oil output limits after Saudi Arabia broke ranks to go it alone.
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