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Thursday, 29 May 2008

Oil surge could trim 1.5 points off US economic growth

WASHINGTON - A TOP White House economic aide to President George Bush said that the surge in oil prices could cut at least 1.5 percentage points off US economic growth if it continues.
'The high price of oil has already cost us a significant amount in terms of economic growth,' Mr Edward Lazear, the chairman of the president's Council of Economic Advisers, said in a speech to the Hudson Institute, a Washington-based think tank.

Mr Lazear estimated that each US$10 (S$13) rise in the price of oil per barrel over the course of the year reduces gross domestic product (GDP) growth by about a quarter of a point.

Oil prices have skyrocketed since crossing US$100 for the first time on Jan 2. Prices hit record highs above US$135 last week before easing back on concerns about demand from the sluggish US economy.

The New York benchmark contract rebounded on Wednesday to above US$130.

'If you think about the amount by which oil has gone up in price over the past year, you're talking about 1.5 point or so of GDP growth,' Mr Lazear said.

The economist declined to discuss recession risks facing the world's largest economy.

'Whether it implies a recession or not, it clearly does hit us hard in terms of GDP growth and it will continue to do so unless we think of ways to deal with this,' he added.

His remarks came a day ahead of the government's revision of first-quarter GDP growth, which for the second quarter in a row was a meager 0.6 per cent annual pace, according to the initial estimate.

Most analysts expect that the economy grew by more than first estimated in the January-March period, at an annual 0.9 per cent pace.

The generally accepted technical definition of recession is two consecutive quarters of negative growth, or contraction. -- AFP

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