Rising Oil Prices Cast A Shadow Over World Economy: IMF

[webfact]

Rising oil prices cast a shadow over world economy: IMF

By The Nation

The strain of fuel costs is spreading globally, depressing growth in advanced economies and pushing up inflation in high-growth emerging nations.

The International Monetary Fund expects the global oil price to average US$107 (Bt3,200) a barrel this year and $108 next year, 20 per cent above its previous forecast, due to stronger-than-expected global petroleum growth in 2010 and a less-than-enthusiastic supply response.

The multilateral watchdog predicted last fall that oil would average $78 this year. After a spike spurred by the political meltdown in Egypt, it upped that forecast to $89 in January.

According to the International Energy Agency, global oil demand in 2011 should be 89.4 million barrels a day on average, which is an increase of 1.4 million barrels or 1.6 per cent from last year.

The IMF said the global economy, expected to expand 4.5 per cent this year against 5 per cent last year, is firmly on the mend but faces rising headwinds, particularly from higher oil prices.

"The key downside risk to growth relates to the potential for oil prices to surprise further on the upside because of supply disruptions," the IMF warned.

Finance Minister Korn Chatikavanij said on Monday that the diesel subsidy may expire after this month, as the Oil Fund can no longer bear the burden after paying out more than Bt20 billion amid the up-trend in global prices.

Despite the government's insistence that retail diesel must be kept below Bt30 per litre, Payungsak Chartsutipol, chairman of the powerful Federation of Thai Industries, reiterated his wish for the diesel cap to be lifted.

Continuing the policy would only encourage motorists to switch to diesel-fuelled vehicles, increase the financial pressure on the government and pass more costs to petrol consumers.

To end the subsidy, the diesel price should be raised Bt1 per litre at a time over a six-month period, to allow the public to adjust, he said.

Bank of Thailand Governor Prasarn Trairatvorakul said inflation would accelerate in the second half of this year, and might rise by 0.5-1 percentage point once the diesel subsidy is removed, but the factors have been taken into account.

The central bank's Monetary Policy Committee is widely expected to raise the policy rate by 25 basis points at its April 20 meeting.

Kosit Panpiemras, executive chairman of Bangkok Bank, urged the monetary authority to pause the rate hikes, saying they could be made later in the year to bring the interest rate up to par with 3-per-cent inflation.

-- The Nation 2011-04-13