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Friday, March 31, 2006
High oil prices to slow down EA economies - WB
SINGAPORE - East Asia’s emerging economies are expected to grow at a slower 6.6 percent in 2006 after 6.8 percent last year as the impact of high oil prices continues, the World Bank said yesterday.
Last year’s growth figure was itself lower than the 7.5 percent recorded in 2004, also because of the dampening effect of rising crude prices, the Washington-based group said in its twice-yearly outlook on East Asia.
Crude prices went on a relentless spike last year, hitting a record high of $70.85 a barrel in August, driven by robust demand in the world’s major economies and hurricane damage in the United States.
It has since eased to mid-60 dollar territory but is still about 50 percent higher than at the end of 2004. The World Bank expects crude prices to be 10 percent higher in 2006 than last year.
Moderate growth
“High oil prices clearly played a large role in moderating growth in 2005,” the World Bank said.
While the report assumes that oil prices have now peaked, “they are still expected to average 10 percent higher in 2006 than in 2005, so that some of the adverse impact is still likely to be playing out in 2006,” the World Bank report said.
Despite the slower growth projections, the World Bank said the “real surprise” was that the highest real oil prices in 25 years had not inflicted more damage on the region.
“World GDP is growing rapidly but importantly for most developing countries, the volume of trade growth in the world has been very strong,” the bank’s chief regional economist Homi Kharas said in a video conference from Sydney.
Cut subsidies
The bank was also encouraged by the region’s efforts to address the impact of higher crude prices, most notably by cutting back on costly fuel subsidies and tightening monetary policy last year.
Reducing fuel subsidies will strengthen fiscal positions and also encourage consumers to get used to having to pay more for oil, the World Bank said.
On the positive effect of tightening monetary policy, it said this “should help forestall the danger of rising oil prices becoming embedded in a sustained rise in core inflation.”
“That too should help underpin the conditions for growth in the medium- to longer-term,” it said.
Another concern would be a possible pandemic of H5N1 avian flu, which can wreak havoc on East Asia’s economies. So far, the outbreak of the deadly strain of bird flu has been mostly restricted to agricultural communities, limiting the overall impact at the national level.
“However, there remains great concern that genetic changes will allow the virus to achieve the capacity for sustained and efficient transmission from human to human, leading to a human influenza pandemic with much higher levels of illness, death and economic and social costs,” the World Bank said.
Pandemic
Bird flu has killed more than 100 people worldwide, mostly in Asia. Experts fear the H5N1 strain of the virus could cause a global pandemic if it mutates into a form easily transmissible between humans.
In its outlook for individual East Asian economies, the World Bank predicts the Southeast Asia region of Indonesia, Malaysia, the Philippines and Thailand will grow 5.3 percent in 2006 — faster than last year’s 5.1 percent.
Indonesia is expected to expand 5.5 percent this year after 5.6 percent in 2005. Malaysia will grow at 5.5 percent, up from 5.3 percent in 2005.
The Philippines is predicted to grow 5.3 percent from 5.1 percent and Thailand, 5.0 percent from 4.5 percent.
The bank projects China will slow to 9.2 percent in 2006 from 9.9 percent last year, while Vietnam will moderate to 8.0 percent against 8.4 percent.
For the region’s more advanced economies, Hong Kong will slow to 5.3 percent in 2006 from 7.3 percent last year, South Korea will grow faster at 5.0 percent, up from 4.0 percent, Singapore is seen at 6.0 percent from 6.4 percent and Taiwan will remain steady at 4.1 percent, the World Bank said. (AFP)
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