KUALA LUMPUR, 11 August 2004 — Soaring oil prices and a slowdown in China’s economy are a double-whammy for Asian countries but will not plunge the region into a recession or derail economic recovery, economists said yesterday.
They told a two-day Asian economic summit here that crude oil prices, which hit a new record high of $44.99 a barrel yesterday, were expected to ease and a soft landing for China’s economy appeared intact.
Despite the optimism, other analysts warned that supply disruptions in Iraq, persistent terrorist threats and the troubles of Russian oil giant Yukos could push oil prices to $50 a barrel or beyond. Singapore-based DBS Bank Vice President and regional economist Chua Hak Bin said oil prices were expected to moderate amid signs of a consumption slowdown in the US and China.
Oil prices at $40 a barrel could shave off 0.6-0.8 percentage points from Asia’s gross domestic product (GDP) growth in 2005, and up to 1.5 percent if prices hit $50 a barrel, he said.
“It is going to hurt but it is not like the oil shock episodes in the 1970s and 80s. It is not going to derail Asia’s recovery. We believe prices will come down slightly from where they are now,” he said.
MasterCard Int. regional economic adviser Yuwa Hedrik-Wong said oil prices were experiencing a “temporary short-term spike” and would likely average around $34 a barrel this year and ease to $32-$33 next year. He said the global economy was becoming more energy efficient and could absorb the increase. Despite uncertainties, he said the world economy was undergoing its “first synchronized global upswing in 15 years” with Asia-Pacific emerging as a high-performance economic region and showing its best fundamentals since 1990.
But other analysts in the region were concerned over the specter of $50 price levels.
“We are afraid prices might be on an increasing trend throughout the year, especially if there is an uncontrolled situation. That is why we should be taking preventive action,” said Jakarta-based ASEAN Centre for Energy director Weerawat Chantanakome.
At $50 a barrel, he warned, oil-dependent ASEAN economies would be turned “upside down” and he urged the region to hasten energy cooperation and the search for alternative power sources.
Malaysian Prime Minister Abdullah Ahmad Badawi, in his keynote address to the Asian summit late Monday, said Asia was expected to grow more than seven percent this year but the region was not yet “bullet-proof” and important policy work was needed to boost its resilience. DBS’s Chua said a cooling of China’s economy could cut two to three percent off Asia’s export growth but “it is not going to send the rest of the region into recession.” “The slowdown is really on the investment side, and limited to targeted sectors. The question is whether the Chinese will introduce more (cooling) measures. I guess it’s a balancing act but so far, it looks like soft landing is the most likely scenario,” he added.
The Asian Development Bank projected annual GDP growth of China, India and the 10-member Association of Southeast Asian Nations (ASEAN) to average nine, eight and six percent respectively from now until 2015, said assistant chief economist Yao Xianbin.
By 2015, China’s GDP is expected to soar to $3,963 billion from $1,409 billion last year, India to $1,518 billion from $603 billion, and ASEAN to $1,346 billion from $669 billion, he said. Yao noted that progress in bank restructuring in Asia had been slow and uneven, domestic investment remained weak, and per capita incomes in developing countries were still significantly low.
“Countries need to accelerate policy reforms and economic restructuring and pursue closer policy cooperation region-wide to maintain broad-based growth,” he added.
