International | May 05 2006
By Chris Shaw (Tokyo)
The Reserve Bank of Australia (RBA) this week lifted official interest rates, in part as a response to higher inflation. Partly responsible for the upward pressure on inflation has been higher fuel prices, but Australia is not alone in struggling to deal with the implications of stronger oil prices.
At its annual meeting this week the Asian Development Bank (ADP) released its growth forecasts for emerging Asian nations, suggesting growth this year will be 7.2% and 7% next year, down from the 7.4% achieved last year.
The bank’s president, Haruhiko Kuroda, said the estimate was based on the view oil prices would gradually soften, as they are regarded unsustainable at current levels. He noted the Asian region as a whole has done well in terms of cutting energy usage and implementing fuel-efficient technologies, Japanese automobiles being a good example of this.
As a result, the region is an efficient user of energy, as for example on a per-person basis oil consumption in Japan and China –both for different reasons though- is just a fraction of what it is in the US.
Despite these efforts and initiatives, the negative impact on economic growth is continuing to flow through, the bank estimating each US$10/bbl increase in average oil prices cuts growth among emerging nations in the region by 0.6%.
With oil prices having risen by about US$20/bl so far this year and based on its full year estimates for the oil price, the bank is predicting economic growth in China could be impacted by 1%, in India by 1.1% and in Thailand by almost 2%.
Given the increasing interdependence of economies in the Asian region thanks to growing trade, as well as Asia’s increasingly important role in terms of driving the world economy, a continuation of higher oil prices could have implications that go beyond just developing nations.
It would likely place global growth rates at risk, as any slowdown in Asia would soon impact on the world economy.