Surging oil prices could curb Asia's economies, with some analysts predicting the fast-growing region — heavily dependent on oil imports...
SEOUL, South Korea — Surging oil prices could curb Asia’s economies, with some analysts predicting the fast-growing region — heavily dependent on oil imports — could slip into a recession if prices don’t recede.
With oil prices about 50 percent higher than a year ago, the warnings are starting to mount.
South Korea’s central bank said higher crude prices could shave 0.7 percentage point off economic growth this year and raise consumer prices. The Philippines has warned of a “heavy toll.” Officials in Japan, the world’s No. 1 oil importer, and Malaysia are voicing concerns.
Most Read Stories
- For $750, Seattle’s newest apartment is the size of a parking space
- Light snowfall expected in Seattle tonight; Snohomish County could see more
- This video of Marshawn Lynch narrating the 'Planet Earth II' iguana chase wins the internet
- Buzzfeed comes to Seattle, eats salmon and is dumbfounded by trees and mountains WATCH
- Forecast: Prepare for snow to hit Seattle late Thursday afternoon
“High oil prices are already weighing on growth in Asian economies,” Andy Xie, economist at Morgan Stanley in Hong Kong, wrote in a report this week. “If oil prices do not recede, Asia could slide into recession in the short term.”
After rising to a record close of $60.54 a barrel Monday, crude-oil prices fell 94 cents to $57.26 a barrel yesterday. But traders said prices could easily test the $60 mark again.
Asia’s heavy reliance on oil imports, mostly from the Middle East, means higher crude prices quickly translate into higher costs for a wide range of companies, from airlines and steelmakers to computer makers and fisheries. Consumers will also have to divert more of their spending to cover higher utility and gasoline bills. The effect could seriously restrain economic growth.
Also, Asian oil consumers have had to pay slightly higher prices because there is less competition among suppliers than in other parts of the world. This so-called “Asian premium” can run as high as $1.50 a barrel.
But the region’s economic diversity — ranging from industrial behemoths like Japan, South Korea and China to smaller economies like Singapore and Hong Kong and advanced consumer societies like Australia — — means the oil-price impact can vary substantially.
Officials in Malaysia, where dozens of electronics companies have factories, are worried that high fuel prices could slow gross domestic product growth to 5-6 percent this year from 7.1 percent last year.
Growth could slow
Likewise, growth in South Korea, home to a booming tech sector, could decline from its previous projection of 4 percent this year, the Bank of Korea warned Tuesday.
Philippine President Gloria Macapagal Arroyo said the oil spike threatens “to take a heavy toll on the entire nation.”
While those economic projections are far from suggesting a recession, economist Xie warns that the impact of higher Dubai crude, an Asian benchmark, can already be seen in Thailand and South Korea.
Thai Prime Minister Thaksin Shinawatra on Monday said that “GDP will definitely be affected by the oil price rise.”
Export-dependent Singapore and Japan appear to be more concerned about the fallout from a global slowdown triggered by higher energy costs. Singaporean officials predict economic growth of between 3-5 percent this year, down sharply from nearly 8.5 percent in 2004.
“There may be a gradual indirect effect on the Japanese economy,” Chief Cabinet Secretary Hiroyuki Hosoda, the top government spokesman, said. “We are worried there may be a major negative impact on the world economy.”
Japan’s suffering from past oil crises has forced the nation to become more fuel-efficient, with factories making conservation a priority and consumer-electronics manufacturers hyping the energy-saving merits of their air conditioners, refrigerators and washing machines.
And while surging oil prices aren’t welcome at a time when Japan is struggling to emerge from a decadelong slump, some automakers speculate that the turn of events could boost interest in their new fuel-efficient cars.
China, however, is cushioned by its state-owned oil companies from most swings in world oil prices. Suppliers often hold prices steady amid fluctuating world markets, taking smaller profits when import costs rise and making up losses with fatter margins when costs fall.’
China’s oil production
Also, China produces a lot of its own oil, making the impact of shifts in world prices smaller than in such places as South Korea or Japan. Retail fuel prices change so rarely that an increase in diesel prices by the government announced this week was treated as major news in state-controlled media.
In India, where the market is also dominated by state-run oil companies, the government has so far absorbed much of the impact of the price rise, but a 2.5-rupee (5 U.S. cents) increase in gasoline prices per liter this month has provoked protests across the country.
“The impact depends entirely on how much is passed on to consumers. In 1999, when something similar happened, the impact on growth was quite significant,” said Abheek Barua, ABN AMRO chief economist in Bombay.
Rob Subbaraman, an economist at Lehman Brothers in Tokyo, and his colleagues lowered their 2005 growth forecast for Asian economies excluding Japan to 6.3 percent from 6.7 percent — but dismissed the idea of a serious slump across Asia.
“We expect a bigger impact from higher prices this year than last year,” Subbaraman said. “We are not close to forecasting a recession for the region.”
For Australia, the higher prices represent “a speed hump for consumers, and the economy generally, rather than a brick wall,” said Craig James, the chief equities economist at CommSec.
“The rising cost of petrol certainly will rob some momentum from the economy,” he said.
Higher oil is having a negative effect on some traditional work, like fishing in New Zealand.
In Nelson, a port on the country’s South Island 90 miles west of the capital Wellington, soaring oil prices are being blamed for fishermen quitting the industry.
Darren Guard, president of the Port Nelson Fishermen’s Association, said that with 40 percent of income spent on diesel, it was becoming unprofitable to fish.
“It’s crippling. It’s at the stage where boats are being forced to tie up,” he told The Nelson Evening Mail.
Associated Press correspondents En-Lai Yeoh in Singapore, Yuri Kageyama in Tokyo, Meraiah Foley in Sydney, Hrvoje Hranjski in Manila, Ray Lilley in Wellington and Pauline Jasudason in Kuala Lumpur, Neelesh Misra in New Delhi and Grant Peck in Bangkok contributed to this report.