Half of Asia, including Taiwan, South Korea, Thailand and Singapore, could plunge into recession and high inflation if a US-led war against Iraq dragged on for months, the Economist Group said yesterday.
In the worst case scenario of a "messy" war that lasted for months, oil prices could spike to between US$80 and US$100 a barrel as countries hoarded oil to build up reserves.
Asia's increased industrialization has raised the region's oil consumption, making it more vulnerable to fluctuations in crude prices compared to the situation in the first Gulf War in 1991.
Every 10 percent increase in the average oil price from last year's average of US$26.20 a barrel would cut Asia's economic growth by 0.23 percentage points, with inflation rising by 1.1 percentage points.
"Half of the Asian countries including Korea and Thailand will plunge into recession if war is prolonged," said Connie Bolland, regional economist for the group's Economist Corporate Network based in Hong Kong.
Under this scenario, "Asia will probably plunge into a year of stagflation, with real GDP growth cut by 3.1 percentage points and inflation escalating 14 percentage points," Bolland said in her report released at the group's Regional Strategic Forecast conference in Singapore.
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