08/29/2005, 00.00
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Record oil prices harm Asian economies

Crude oil tops 70 dollars a barrel. Experts insist fears over hurricane Katrina do not justify surge. High oil prices make products from emerging Asian economies less competitive and slow economic growth.

Beijing (AsiaNews/Agencies) – Asian exchanges declined as oil price hikes are expected to hit trade exports. Oil prices set a new record after crossing US$ 70 per barrel in Asian trade on Monday as hurricane Katrina threatens to be the worst of its kind to hit the continental United States.

Hundreds of thousands of people are fleeing coastal regions in and around New Orleans (Louisiana) where Katrina is expected to land and where it might destroy offshore oil platforms in the Gulf of Mexico, an area that produces 30 per cent of US crude. But economists are of the opinion that price rises are disproportionate.

"It seems to be a very crazy market," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. He believes oil at US$ 70 a barrel may not be sustainable because the US summer holidays were drawing to a close, reducing fuel demand.

Other market observers believe rising oil prices—doubling from US$ 33 at the end of 2003—are going to hurt economic growth in Asia.

"Asian economies, in the face of rising oil prices, are likely to slow down," said Park Cyn-young, an economist with the Asian Development Bank (ADB).

In its April report, the ADB forecast East Asian growth to average 6.7-7.2 per cent in the next two years. Its updated outlook is due to be released on September 8.

Higher oil prices mean greater spending on energy and lower competitiveness for Asian companies.

China Southern Airlines, which serves China's domestic market, has had to take losses worth 964 million yuan (US$ 119 million) to continue offering competitive ticket prices in the first half of 2005 compared to 374 million (US$ 46 million) profits in 2004

The price of fuel, which represents 30 per cent of its overall cost, doubled over last year, the company said. The result has been that its shares on the Hong Kong Stock Exchange have dropped by 5.8 per cent.

For Milan Brahmbhatt, the World Bank's lead economist for East Asia and the Pacific, the bank is likely to trim its growth forecast made in April largely as a result of higher oil prices and slower export expansion.

Growth for Hong Kong, South Korea, Singapore and Taiwan was likely to be at 3.8 per cent this year down from the original 4.6 per cent, he said.

"The main South-East Asian economies—Indonesia, Malaysia, the Philippines and Thailand—are also expected to experience slower growth in 2005-2006 than we had expected in April," he added.

But Mr Brahmbhatt stressed that the slower growth rate was based on a "relatively benign" scenario of oil prices remaining at current levels this year. He warned the impact would be more severe if prices went up even more.

Andy Xie, chief Asian economist for Morgan Stanley, said "[t]he strongest headwind for growth is oil so far. In the first half of 2005, the Asia-Pacific region was paying 1.2 per cent of GDP more for exports than last year." (PB)

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Record rise in production costs, China's economy slows
Chinese inflation remains high, economic growth slows
Post-Tsunami Asia reaches out to help the USA
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