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Monday, 2 June 2008

Soaring oil prices may start to hurt Asia soon

As region is net oil importer, impact on companies and consumers is rising

By Bryan Lee, Economics Correspondent

AS CRUDE prices breach all-time highs and the global economy is still tender from the United States sub-prime debacle, alarm bells are starting to sound over the relentless rise of oil.

Analysts say oil prices may be nearing the point where Asian economies, including Singapore, will feel the pain from soaring energy costs.

Slowing economic growth, led by a sputtering US economy, will make it harder for consumers and companies to shrug off the pain of bigger transport fees and electricity bills.

Unlike the boom times of the past few years, wages and profits will be under downward pressure instead.

While no one is pressing the panic button yet, caution is building up. The International Monetary Fund warned last week that surging energy costs could send the world into a recession.

The ongoing run-up in the cost of crude, up 40 per cent so far this year and nine times 2000 prices, is reviving memories of the 1970s oil shocks. Oil prices rose fivefold between 1973 and 1980, ushering in a period of 'stagflation' - a dreaded combination of recession and high inflation.

Oil prices eased last week after exceeding US$135 (S$183) a barrel the previous week. But experts say this is probably a mere breather before they resume their upward trajectory.

So far, Asian economies have remained relatively robust but economists warned that the region is a large net importer of oil and that inflation hits gross domestic product with a lag.

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