Oil prices hit a record high of 100.09 U.S. dollars per barrel (dpb) on the New York Mercantile Exchange on Thursday after crossing the threshold of 100 dpb on the previous day, the first trading day of 2008.
Analysts are worried that together with the U.S. sub-prime mortgage crisis, constantly high oil prices may add more uncertainty to the future of the world economy.
According to the "World Economic Outlook" published in October by the International Monetary Fund (IMF), rich countries will see an economic growth rate of 2.2 percent in 2008, lower than the 2.5percent in 2007.
The report predicted that the slowdown trend will also be seen in developing countries, which will grow at 7.4 percent, much lower than the 8.1 percent last year.
Given the recent record of oil prices, the world economy may be dragged down further, analysts said.
"Oil prices have been rising fast since the summer," Amelia Torres, a spokeswoman for the EU executive commission, said on Thursday. "If these very high levels are maintained, it will of course have an impact on the economy," she said.
"Staying at the 100-dollar-level will mean inflation and economic hardship," Business Week cited senior energy analyst Fadel Gheit as saying.
"Despite the fact that recent high oil prices are not driven up by supply shortages, the price rise will still produce a broad impact," he added.
Constantly high oil prices will adversely influence the world economy in two ways, analysts said.
On the one hand, if people have to pay more for energy, their individual consumption capacity will be restrained, which will hamper overall economic growth as individual consumption has already become a major economy booster in rich countries.
On the other hand, high oil prices will increase the risk of worldwide inflation, given that oil is now an indispensable raw material used in a wide range of areas.
For developed economies, the sub-prime mortgage crisis has triggered a lack of financial fluidity. To avoid further turbulence on the financial market, the U.S. Federal Reserve (Fed) and the European Central Bank had to lower interest rates or stop raising interest rates in order to stimulate fluidity. However, high oil prices pose pressure for potential inflation, which will put western central banks in a dilemma on whether to increase or decrease interest rates.
In spite of that, many analysts believe that a surging oil price now won't be as destructive to the world economy as in the past, as western economies such as the U.S. have greatly reduced their reliance on oil in the last 30 years.
"The percentage (of personal income spent on energy) was far higher in 1979-80 than it is now," said Kay Smith, a macro-economist at the Energy Information Administration.
In 1981, 14 to 15 percent of the nation's gross domestic product was spent on energy, according to Lester Lave, professor of economics at Carnegie Mellon University's Tepper School of Business. That has fallen to seven percent today.
"So far, consumers have done an amazing job of ignoring high oil prices," said David Wyss, chief economist at Standard & Poor's.
The Daily Telegraph newspaper in Britain pointed out that in recent years the relationship between oil and the wider economy has been "out of whack" for some time. The ten-fold increase in oil prices in recent years has shown its lack of broader impact on the world economy, the paper said.
However analysts' opinions on the effect of surging oil prices on the global economy may differ, its psychological impact on global investors cannot be underestimated. On the New York Stock Exchange, the Dow Jones industrial average, the Standard & Poor's 500 Index, and the Nasdaq Composite Index all plunged on January 2,due to the up thrust of oil prices above the 100-dollar threshold. On Jan. 4, the 225-issue Nikkei Stock Average on the Tokyo Stock Exchange also plummeted.
If investors' panic caused by high oil prices is difficult to erase, the global financial market may witness more turbulence in the new year, analysts fear.
Source: Xinhua
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