WSJ.com - Storm's Economic Impact Is Felt Around Globe
WSJ.com - Storm's Economic Impact Is Felt Around Globe
Likely Slowdown in Growth
And Employment in U.S.
Pressures Other Economies
By PATRICK BARTA in Bangkok, MARCUS WALKER in Frankfurt and JON E. HILSENRATH in New York
Staff Reporters of THE WALL STREET JOURNAL
September 7, 2005; Page A8
The economic waves from Hurricane Katrina are being felt not just in the U.S., but around the globe, particularly in countries such as Indonesia and Italy that already were straining from soaring oil costs before the storm disrupted energy supplies.
In Australia, economists blame Katrina for a roughly 15-cent-a-gallon increase at the pumps. Germany saw gasoline prices jump by about the same amount, and a car drivers' association accused gasoline companies of gouging customers in the hurricane's aftermath. In Asia, government subsidies widely used to shield consumers from high oil prices, which already were costly before the storm, are pressuring government finances and boosting the odds of a slowdown in consumer spending.
Few economists expect the global economy to grind to a halt because of the storm alone. Just as the U.S. has become more resilient to energy shocks in the past two decades, so have many of its trading partners.
But given the U.S. role as the world's economic locomotive, the likely slowing of growth and employment here in the months ahead is likely to restrain growth elsewhere.
"Katrina has made it less likely that there will be [an energy] price fallback and more likely that there will be a price increase," says Michael Mussa, an economist with the Institute of International Economics. "It has made a growth slowdown that was already in the cards probably a little bit steeper and more likely."
• Oil Infrastructure Bounces Back
• Complete coverage
In April, Mr. Mussa projected growth in the global economy would slow to an annual rate of just under 4% in 2005 and 2006 from around 5% in 2004. He is sticking to his 2005 projection, but now says growth next year is likely to be a little more than 3%. Morgan Stanley is paring its world growth forecast to 3.7% in 2006 from its earlier 4.1%, primarily because of the accumulated impact of higher energy prices over the past few months.
Though oil prices have returned to pre-Katrina levels, the retreat has come only after a drawdown of emergency reserves in the U.S., Europe and Asia. The shutdown of refineries in the U.S. is putting strain on global gasoline prices, pushing up consumer costs everywhere there are drivers. Many U.S. trading partners depend on U.S. consumers to gobble up their exports of cars, sneakers, appliances and other products. With U.S. households tested by a combination of low savings and rising costs at the pump, the ripple effects of a consumer slowdown in the U.S., if any, will be widespread.
"Should the overextended American consumer falter under the weight of the energy shock -- a distinct possibility, in my view -- China would be on the leading edge," said Stephen Roach, the chief global economist at Morgan Stanley and a well-known "bear" on the economy. "Asian vulnerabilities cannot be minimized."
Even before Katrina, growth had slowed sharply in Thailand. At the Siam Square Mall, a giant complex of shops and restaurants popular among Thai teenagers, stores are reporting weaker sales. Maitong Sonakum, who manages a shoes and handbags shop called Lovely Shoes, said sales have dropped by half since oil prices started rising. The store hung a sign promising discounts of 50% to 80%, "but we still don't have as many customers as before," she said.
China, too, has been grappling with unexpected problems. Because of government rules that force refineries to cap the price they charge consumers for refined products, many Chinese refineries are opting to sell their products abroad where they can get higher prices. That has resulted in gasoline shortages and forced some users to ration fuel or delay travel, which in turn could slow economic growth.
In Indonesia, Southeast Asia's largest economy, worries over fuel subsidies helped push the local currency, the rupiah, to its lowest level in four years last week, forcing officials to raise interest rates and pledge politically explosive fuel-price boosts in the months ahead. On Friday, credit rating agency Standard & Poor's downgraded the outlook on Indonesia's single-B-plus rating to "stable" from "positive."
In India, state oil companies reported a cumulative $280 million loss in the last quarter to pay for oil subsidies, according to UBS. India has raised gasoline prices about 7% in an attempt to ease the burden, but some analysts said it wasn't enough to dispel the worries. India's minister for petroleum and natural gas recently predicted revenue losses due to subsidies at oil companies such as Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp., could hit about $9 billion in the fiscal year ending March 31.
The effects on America's closest trading partners, Mexico and Canada, are more mixed, because both are net exporters of energy.
But Europe has its own problems. In Italy, truckers who deliver new cars to dealerships recently walked off their jobs for an entire month to protest higher diesel prices. The strike blocked the delivery of 140,000 new cars and forced Fiat Auto SpA to temporarily shutter all of its Italian factories when it ran out of space to store cars that couldn't be delivered.
Energy-related woes have continued to pile up in recent days. Yesterday Belgian industrial foam maker Recticel SA blamed the higher price of raw materials influenced by the oil market for the company's 35% drop in operating profit during the first half of this year.
Rising energy costs currently are adding about one percentage point to consumer inflation in the euro zone, which is eroding the purchasing power of slow-growing personal incomes in the 12 countries that share the euro. Higher energy prices are making it harder for the European Central Bank to cut interest rates to stimulate the euro-zone economy, despite political pressure from national governments to do so.
With consumer spending forecast to remain weak, Germany's meager economic growth is expected to reach little over 1% this year, leaving it heavily dependent on rising exports -- and therefore consumer demand in the U.S
Likely Slowdown in Growth
And Employment in U.S.
Pressures Other Economies
By PATRICK BARTA in Bangkok, MARCUS WALKER in Frankfurt and JON E. HILSENRATH in New York
Staff Reporters of THE WALL STREET JOURNAL
September 7, 2005; Page A8
The economic waves from Hurricane Katrina are being felt not just in the U.S., but around the globe, particularly in countries such as Indonesia and Italy that already were straining from soaring oil costs before the storm disrupted energy supplies.
In Australia, economists blame Katrina for a roughly 15-cent-a-gallon increase at the pumps. Germany saw gasoline prices jump by about the same amount, and a car drivers' association accused gasoline companies of gouging customers in the hurricane's aftermath. In Asia, government subsidies widely used to shield consumers from high oil prices, which already were costly before the storm, are pressuring government finances and boosting the odds of a slowdown in consumer spending.
Few economists expect the global economy to grind to a halt because of the storm alone. Just as the U.S. has become more resilient to energy shocks in the past two decades, so have many of its trading partners.
But given the U.S. role as the world's economic locomotive, the likely slowing of growth and employment here in the months ahead is likely to restrain growth elsewhere.
"Katrina has made it less likely that there will be [an energy] price fallback and more likely that there will be a price increase," says Michael Mussa, an economist with the Institute of International Economics. "It has made a growth slowdown that was already in the cards probably a little bit steeper and more likely."
• Oil Infrastructure Bounces Back
• Complete coverage
In April, Mr. Mussa projected growth in the global economy would slow to an annual rate of just under 4% in 2005 and 2006 from around 5% in 2004. He is sticking to his 2005 projection, but now says growth next year is likely to be a little more than 3%. Morgan Stanley is paring its world growth forecast to 3.7% in 2006 from its earlier 4.1%, primarily because of the accumulated impact of higher energy prices over the past few months.
Though oil prices have returned to pre-Katrina levels, the retreat has come only after a drawdown of emergency reserves in the U.S., Europe and Asia. The shutdown of refineries in the U.S. is putting strain on global gasoline prices, pushing up consumer costs everywhere there are drivers. Many U.S. trading partners depend on U.S. consumers to gobble up their exports of cars, sneakers, appliances and other products. With U.S. households tested by a combination of low savings and rising costs at the pump, the ripple effects of a consumer slowdown in the U.S., if any, will be widespread.
"Should the overextended American consumer falter under the weight of the energy shock -- a distinct possibility, in my view -- China would be on the leading edge," said Stephen Roach, the chief global economist at Morgan Stanley and a well-known "bear" on the economy. "Asian vulnerabilities cannot be minimized."
Even before Katrina, growth had slowed sharply in Thailand. At the Siam Square Mall, a giant complex of shops and restaurants popular among Thai teenagers, stores are reporting weaker sales. Maitong Sonakum, who manages a shoes and handbags shop called Lovely Shoes, said sales have dropped by half since oil prices started rising. The store hung a sign promising discounts of 50% to 80%, "but we still don't have as many customers as before," she said.
China, too, has been grappling with unexpected problems. Because of government rules that force refineries to cap the price they charge consumers for refined products, many Chinese refineries are opting to sell their products abroad where they can get higher prices. That has resulted in gasoline shortages and forced some users to ration fuel or delay travel, which in turn could slow economic growth.
In Indonesia, Southeast Asia's largest economy, worries over fuel subsidies helped push the local currency, the rupiah, to its lowest level in four years last week, forcing officials to raise interest rates and pledge politically explosive fuel-price boosts in the months ahead. On Friday, credit rating agency Standard & Poor's downgraded the outlook on Indonesia's single-B-plus rating to "stable" from "positive."
In India, state oil companies reported a cumulative $280 million loss in the last quarter to pay for oil subsidies, according to UBS. India has raised gasoline prices about 7% in an attempt to ease the burden, but some analysts said it wasn't enough to dispel the worries. India's minister for petroleum and natural gas recently predicted revenue losses due to subsidies at oil companies such as Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp., could hit about $9 billion in the fiscal year ending March 31.
The effects on America's closest trading partners, Mexico and Canada, are more mixed, because both are net exporters of energy.
But Europe has its own problems. In Italy, truckers who deliver new cars to dealerships recently walked off their jobs for an entire month to protest higher diesel prices. The strike blocked the delivery of 140,000 new cars and forced Fiat Auto SpA to temporarily shutter all of its Italian factories when it ran out of space to store cars that couldn't be delivered.
Energy-related woes have continued to pile up in recent days. Yesterday Belgian industrial foam maker Recticel SA blamed the higher price of raw materials influenced by the oil market for the company's 35% drop in operating profit during the first half of this year.
Rising energy costs currently are adding about one percentage point to consumer inflation in the euro zone, which is eroding the purchasing power of slow-growing personal incomes in the 12 countries that share the euro. Higher energy prices are making it harder for the European Central Bank to cut interest rates to stimulate the euro-zone economy, despite political pressure from national governments to do so.
With consumer spending forecast to remain weak, Germany's meager economic growth is expected to reach little over 1% this year, leaving it heavily dependent on rising exports -- and therefore consumer demand in the U.S
posted by Marcel at 4:32 PM
0 Comments:
Post a Comment
<< Home