Slowdown Looms as Oil Prices Soar

By Neilan, Edward | The Washington Times (Washington, DC), September 22, 2000 | Go to article overview

Slowdown Looms as Oil Prices Soar


Neilan, Edward, The Washington Times (Washington, DC)


TOKYO - Rising oil prices are among the "good reasons to worry" about Asia's economic recovery, say many analysts.

Manu Baskaran, the usually upbeat research director of SG Securities, told the Asian Wall Street Journal on the sidelines of the recent World Economic Forum in Melbourne, Australia, that "the risks are rising" that any sharp economic pressures will be felt in a slowdown - but not one of crisis proportions - in a regional recovery that has gathered some momentum.

Mr. Baskaran pointed to a continued rise in oil prices, concern over Asia's banking comeback, volatile Internet share prices and fluctuating interest rates as potential sources of sharp economic pressures.

The rise in petroleum prices over recent weeks has stoked inflation concerns around the world, and Asia is no exception.

The International Monetary Fund's latest World Economic Outlook, due out next week, expects oil prices to continue to rise in coming months, the German edition of the Financial Times reported this week after obtaining a copy.

As winter approaches, the IMF expects oil prices to rise as demand for fuel oil increases amid low reserves and strong growth in the global economy, the newspaper said. Crude oil and heating oil reserves were not filled to the usual extent during the summer because of high prices.

RESERVES LOW, NEEDS RISE

This will increase pressure on existing reserves during the winter, Financial Times Deutschland said. In the short term, extra requirements would rise to 5 million barrels of crude oil per day, while the members of the Organization of the Petroleum Exporting Countries (OPEC) plan to pump 3 million extra barrels a day.

Japanese Finance Minister Kiichi Miyazawa said on Wednesday that rising oil prices and the weak euro will be discussed when finance ministers and central bank chiefs of the Group of Seven industrial nations meet in Prague this weekend.

He hinted that the G-7 could take concerted measures, like asking petroleum exporting countries to sell more oil.

Minister of International Trade and Industry Takeo Hiranuma also expressed willingness to cooperate with the other G-7 nations in dealing with the oil issue, telling a news conference that measures such as saving energy and diversifying sources could be taken.

Added Mr. Miyazawa: "We need to exchange views on the oil problem. [Japan] will soon be affected by the economic slowdown in Southeast Asian countries as they face the impact of higher oil prices."

ASIAN SURPLUSES DWINDLE

Higher oil prices could harm Asian trade across the board. Trade surpluses are dwindling in Thailand, South Korea and Taiwan. Thailand - which has continued to pay off its foreign-currency-denominated debts - has to avoid a decline in exports.

Thai government officials are carefully watching the movement of crude-oil prices, since a continued rise would cause the Thai baht to decline.

The reasons for Asia's oil dependence are well-known and straightforward.

While Asia was rapidly industrializing over the past three decades - and consumers were moving from bicycles and motor scooters to automobiles - the developed world was switching to alternative energy sources such as nuclear power and natural gas, and to more fuel-efficient cars.

But in much of Asia, some countries actually subsidized the politically sensitive cost of energy, and scant progress has been made in finding alternatives to oil.

"When Asia was making its rapid leap forward, oil prices were getting cheaper and cheaper," said Geoffrey Barker, chief economist for HSBC Holdings. "It wasn't a policy priority."

JAPAN, CHINA ARE EXCEPTIONS

The exceptions are Japan and China, according to Mr. Barker. Jolted by the autumn "oil shocks" of 1973 and 1979, Japan made an effort to reduce its dependence on imported oil. …

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