Oil price 'a shock to global economy'
Oil price 'a shock to global economy' - Economics - Times Online
By Andrew Ellson, Times Online
The OECD has compared the soaring cost of oil to the price spikes that shook the world economy in the 1970s and warned that today’s high energy costs could derail global growth, particularly in the eurozone.
The respected international economic think tank also warned that the devastation wrought by Hurricane Katrina would add to the shock of high oil prices but added that the full economic impact of the storm could not yet be judged with any confidence.
In a statement released today, Jean-Philippe Cotis, the Organisation of Economic Co-operation and Development’s chief economist, said that America, Europe and Japan would be hit by these turbulences at different stages of their business cycles.
"As a general rule, the stronger the underlying economic momentum, the better for resilience," Mr Cotis said.
"All else equal, coping with adversity is easier the broader-based the expansion. In this regard, the United States and, to a lesser extent, Japan may be better placed. In contrast, in the euro area at large as well as in France in particular, but also in the United Kingdom, household consumption has faltered as of late."
The OECD predicted that the American economy would grow by 3.6 per cent in 2005 but said that the estimate was made before the catastrophe caused by Katrina.
American economists estimate that Katrina will result in a loss of activity of 0.25 to 0.50 per cent of GDP in the second half of the year.
Mr Cotis said that the US Federal Reserve should continue increasing interest rates but at a slower pace. "The Federal Reserve should continue to move back towards neutrality, although possibly at a more measured pace than hitherto," he said.
But he said the European Central Bank should maintain its current accommodative monetary policy. "The moment for a tightening of monetary policy in Europe has not come yet, at least not for the immediate future, between now and the end of the year. After that we will have to see what the economy does and whether the recovery gets going again."
The OECD downgraded its prediction for 2005 UK growth to 1.9 per cent from 2.4 per cent; further isolating Chancellor Gordon Brown, who predicted expansion of 3 per cent to 3.5 per cent.
The range of independent forecasts on growth runs from 1.3 per cent to 2.8 per cent, well below the Treasury’s estimate, leading many economists to speculate that the Chancellor will have to raise taxes to rein in a growing budget deficit.
Mr Cotis added that the threat of inflation gave the Bank of England a dilemma.
"In the UK, as long as inflation expectations remain well anchored, higher oil prices also seem to call for lower interest rates than would otherwise have been the case
By Andrew Ellson, Times Online
The OECD has compared the soaring cost of oil to the price spikes that shook the world economy in the 1970s and warned that today’s high energy costs could derail global growth, particularly in the eurozone.
The respected international economic think tank also warned that the devastation wrought by Hurricane Katrina would add to the shock of high oil prices but added that the full economic impact of the storm could not yet be judged with any confidence.
In a statement released today, Jean-Philippe Cotis, the Organisation of Economic Co-operation and Development’s chief economist, said that America, Europe and Japan would be hit by these turbulences at different stages of their business cycles.
"As a general rule, the stronger the underlying economic momentum, the better for resilience," Mr Cotis said.
"All else equal, coping with adversity is easier the broader-based the expansion. In this regard, the United States and, to a lesser extent, Japan may be better placed. In contrast, in the euro area at large as well as in France in particular, but also in the United Kingdom, household consumption has faltered as of late."
The OECD predicted that the American economy would grow by 3.6 per cent in 2005 but said that the estimate was made before the catastrophe caused by Katrina.
American economists estimate that Katrina will result in a loss of activity of 0.25 to 0.50 per cent of GDP in the second half of the year.
Mr Cotis said that the US Federal Reserve should continue increasing interest rates but at a slower pace. "The Federal Reserve should continue to move back towards neutrality, although possibly at a more measured pace than hitherto," he said.
But he said the European Central Bank should maintain its current accommodative monetary policy. "The moment for a tightening of monetary policy in Europe has not come yet, at least not for the immediate future, between now and the end of the year. After that we will have to see what the economy does and whether the recovery gets going again."
The OECD downgraded its prediction for 2005 UK growth to 1.9 per cent from 2.4 per cent; further isolating Chancellor Gordon Brown, who predicted expansion of 3 per cent to 3.5 per cent.
The range of independent forecasts on growth runs from 1.3 per cent to 2.8 per cent, well below the Treasury’s estimate, leading many economists to speculate that the Chancellor will have to raise taxes to rein in a growing budget deficit.
Mr Cotis added that the threat of inflation gave the Bank of England a dilemma.
"In the UK, as long as inflation expectations remain well anchored, higher oil prices also seem to call for lower interest rates than would otherwise have been the case
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