ATHENS: The global economy seems to be heading for a recession and commodity-producing countries will be hit worse than most, Saudi Arabia’s deputy central bank governor Muhammad Al-Jasser said yesterday.
“A global recession of some sort seems to be on the way,” he said in a speech at the Bank of Greece in Athens. “Commodity-based countries will be worse off than most others.”
Fears of a global economic downturn have already slashed oil prices by more than half from their highs of over $140 a barrel earlier this year. Members of the OPEC oil producers group agreed last month to reduce output by 1.5 million barrels a day, or 5 percent, from Nov. 1 in an effort to shore up prices.
Al-Jasser said the present financial crisis became global much quicker than previous episodes, due to abuses by investment banks which were excessively leveraged. An ensuing regulatory clampdown will have ramifications for lightly-regulated financial activities.
“Excessive deregulation invites excessive risk-taking,” he said. “I think we are well into the financial crisis, central banks have come up to the task, adding liquidity. Measures taken should cushion the global economy.”
Responding to questions, Al-Jasser said the volatility in oil prices this year was unprecedented, exacerbated by speculators. “We have never seen oil this volatile as it has been this year. Speculators exacerbate the volatility of oil prices, they exacerbated the volatility upwards and now exacerbate the volatility downward,” he said.
Meanwhile, Iran’s central bank warned yesterday that if oil prices fall under $60 a barrel, the country’s oil-dependent economy will struggle to survive the world financial crisis, the ISNA news agency reported.
“If average price of oil stays at $60.6 in the remaining five months of the current year (to March 2009), we can get through this crisis safe and sound,” the bank’s deputy for economic affairs, Ramin Pashaifam, was quoted as saying in Tehran.
“If the price falls under this, our economy will face big problems.”
Oil prices surged to record highs in July of close to $150 a barrel but have since plunged, with OPEC’s basket price standing at $57.65 on Friday, despite the grouping deciding to cut its output.
Crude income accounts for 80 percent of foreign earnings for Iran, OPEC’s second largest exporter, making the economy highly vulnerable to oil price shifts. Pashaifam said that with a minimum price of $60, Iran will still need to use savings from oil revenues to cover its budget needs. “In a case of $60 per barrel for oil, no cash will remain in the Oil Stabilization Fund,” he said, referring to a fund which aims to guard against price fluctuations and to finance private sector projects.