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High oil prices take their toll on world economy
Record high oil prices have deepened economic pain and even energy producers have begun to fret, but at talks with their customers in Rome they blamed the dollar and said they could not halt the rally.
- Reuters
- Published: 23:39 April 21, 2008
Rome: Record high oil prices have deepened economic pain and even energy producers have begun to fret, but at talks with their customers in Rome they blamed the dollar and said they could not halt the rally.
Speaking after oil hit yet another record above $117 a barrel yesterday, the IMF's John Lipsky told Reuters the price was one of many factors eating into economic growth. "It's dampening growth - that's for sure, but of course it is benefiting exporters."
Lipsky, the No. 2 official at global watchdog the International Monetary Fund (IMF), was arriving for talks between energy producers and consumers that continue till today.
Representatives of both sides have said the risk is prices will go higher still and although the United States has led calls for more oil to calm markets, Opec oil ministers have repeatedly said that would make no difference.
They say the problem is nothing to do with short-term supply. Rather, it is a result of a weak dollar that has hit record lows against major currencies in response to a faltering US economy.
"We think the price that we are seeing is a consequence of the devaluation of the dollar," Venezuelan Energy and Mines Minister Rafael Ramirez told Reuters. "The devaluation has caused terrible consequences for the world economy and for food prices."
Echoing comments by other members of the Organisation of Petroleum Exporting Countries (Opec) attending the Rome talks, he said Opec could not bring down the price by pumping more because there was already enough oil in the market.
The IMF's latest World Economic Outlook earlier this month put its world growth forecast at 3.7 per cent this year, down from a growth forecast in January of 4.1 per cent.
It has predicted the US economy would enter a modest recession in 2008 and start gradually to recover in 2009. Growth expectations were based on assumptions of an oil price of $95.50 for 2008 and $94.50 in 2009, well below the record of $117.40 for US crude hit yesterday. Financial markets have been in turmoil for months in a crisis triggered by US bad debt and a sliding housing market.
Many analysts say the problems have helped to spur a wave of buying in oil and other dollar-denominated commodities, as investors seek an inflation hedge. The rise of gasoline prices in the United States to more than $3 a gallon has eroded customer demand and spending power.
But those suffering most are the poor nations, said the chief economist of the International Energy Agency, representative of energy consumer nations, adding the impact on the poorest was among the themes of the International Energy Forum (IEF) talks in Rome.
"Of course there is an impact on the economy. .... The greatest impact is on poor, oil importing countries," he said.
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