Economists expect further growth in Asia

Asia's are proving resilient amid record high world crude prices and will maintain strong growth rates throughout this year even if oil remains around current levels, analysts said.

Prices more than doubled since 2002, reaching a new peak this week with the New York light sweet crude contract hitting US$57.60 a barrel, thanks in large part to Asia's fast-rising demand for oil, particularly from China.

However, even though Asia is a net oil importer, analysts said the region's export-driven economies would be able to withstand a sustained period of high prices with only a relatively minor impact on their world-beating growth rates.

"I don't think the impact on Asian economies will be that great," the London-based chief international economist with Capital Economics, Julian Jessop, told reporters.

"The key factor driving prices higher has been strong demand, particularly from Asia. In this respect, Asian growth is driving oil prices and not the other way around. It would therefore make little sense to slash [growth] forecasts on the basis of higher oil prices ... Oil prices are high because Asian growth is strong ... high oil prices are a sign of Asian strength rather than weakness," he said.

Jessop, who is forecasting prices to drop to about US$40 a barrel by the end of this year and to US$35 in 2006, said the impact on inflation in Asia was also likely to be temporary.

The World Bank said in November last year that higher oil prices could knock 0.8 percentage points off Asian growth forecasts, compared with 0.5 points globally, with the bigger net importers such as South Korea, the Philippines and Thailand suffering the most.

Jessop however, that those sort of figures could give a misleading impression of the impact on Asia compared with Organization for Economic Cooperation and Development (OECD) members and the rest of the world.

"While the Gross Domestic Product of developing economies in Asia may be twice as sensitive as that of OECD economies to rising oil prices, it is typically growing at least twice as quickly to begin with," he said.

David Cohen, an economist with Action Economics in Singapore, agreed that high oil prices would have a relatively limited impact on Asian growth rates.

"It is likely to represent a drag on growth ... like last year. If you remember, growth across the region slowed during the second half of 2004 and part of this was probably due to a drag from higher oil prices," Cohen told reporters.

"Nevertheless we still managed to post strong growth for 2004 and we should be able to post healthy growth again this year."

Asia's expanded at around an average 7.0 percent last year, most of them at their fastest rates since the 1997-1998 regional financial crisis and well ahead of the US and Europe.

The growth came even as oil prices rose from around US$32 a barrel at the beginning of last year to above US$55 in October, a record that was not breached until this week.

Cohen Action Economics said there would "more of a pinch in global demand and an impact on world growth" if prices breached and stayed over US$60.

At the same time, he noted that in inflation-adjusted terms, current prices were still below levels seen in the recession hit 1970s and 1980s, with the equivalent level roughly US$80 per barrel.

Chua Hak Bin, a senior regional economist with DBS Group in Singapore, also appeared unconcerned, citing an International Monetary Fund report that said oil prices at US$80 would shave 1.0 percentage point off US growth rates.

"It will hurt but it will not send the biggest economy into recession.

"Asia is in a much better financial position to stomach any oil price shock. There will be some impact on growth but it's really expected to be quite modest. Most of the Asian countries have a trade surplus so they have some room to stomach a [sharp] increase," he said.