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Mon, Apr 12, 2004 - Page 12 News List

Rising commodity prices not huring global economy


Surging commodity prices appear to be having only a mildly damaging impact on the global economy while providing a much-needed boost for many developing countries, analysts said.

The Commodities Research Bureau's index of 17 raw materials has risen to the highest level for 20 years recently, topping 280 points.

Oil prices above US$38 a barrel recently in New York fanned worries about the impact on the global economy of high energy prices.

But so far the overall effect appears to have been subdued, experts said.

"Global growth is accelerating at the same time as we have very high prices for commodities, in particular energy," said Barclays Capital analyst Kevin Norrish.

"I think the world has got used to higher commodity prices and they will not prove to be a drag on global economic growth," he said.

The usual concern was that rising commodity prices signalled higher inflation, said HSBC economist Stephen King.

"Although commodity prices have been quite strong for two years, at the same time we've seen some dramatic reductions in labor costs," thanks to productivity gains and a shift of production towards countries with low wages, King said.

Although commodity importers would see their trade balance deteriorate, this would be unlikely to be reflected in higher inflation, he said.

But there would be negative repercussions.

"It's likely instead to be reflected either in lower profits or weakness in the labor market," King said.

For exporters, meanwhile, an increase in commodities prices was positively good news, said Societe Generale analyst Frederic Lasserre.

"Developing countries export commodities to industrialized nations, which produce only small amounts themselves," he said.

Gulf countries in particular are savoring good times thanks to oil prices that are now above US$30 a barrel, Lasserre added.

"All these countries have growth rates that they have not known for a long time, which proves that their export receipts are rising strongly," he said.

Kuwait is set to post the largest fiscal revenue in more than 25 years in the year that ended on March 31 -- 6.90 billion dinars (US$23 billion) -- on the back of high oil prices and a rise in production, the independent Kuwaiti consultants Al-Shall forecast last week.

The primary beneficiaries of the commodities boom were those producers who export to China, which has played a big role in pushing commodity prices higher, King said.

However, those producers' gains have been eroded by a fall in the value of the dollar against many other currencies, several analysts noted.

"The producer countries have seen their currencies appreciate against the dollar, so their revenues are not as high as they would be," Norrish said.

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