CALGARY, Sept 10: Oil prices that surged past $70 a barrel in the aftermath of Hurricane Katrina will create some pressure on world economies, but not to a devastating degree, the central bankers of China, Canada and France said on Friday.
China’s booming demand for crude, driven by its brisk economic growth, was a key factor in the run-up in crude prices before the hurricane hobbled US oil output in the Gulf of Mexico, and that thirst is expected keep growing.
But sky-high prices will likely not cut into growth that is now expected to surpass the Chinese central bank’s and government’s target of 8 per cent, Zhou Xiaochuan, governor of the People’s Bank of China, told reporters after speaking to a round-table forum of business and government leaders.
China has large coal reserves, which can offset shortages in crude oil, much of which it imports, Zhou said.
I don’t think the high energy prices will have a substantial impact to the economic growth rate, he told reporters.
However, energy prices at today’s levels stand to create some inflationary pressure as China proceeds with the liberalization of its currency, a process it began this year.
Inflation in China has been in the 2 per cent to 2.5 per cent range, which is in line with major economies around the world, Zhou said.
Oil prices have climbed 50 per cent this year due to a combination of demand, driven by economic growth and tight production capacity in Opec and non-Opec countries.
US crude cleared $70 after Hurricane Katrina damaged production and refining facilities in the US Gulf of Mexico. Crude closed down 41 cents at $64.08 on Friday.
Zhou, Bank of Canada Governor David Dodge and Bank of France Governor Christian Noyer spoke at an annual event at the lush Spruce Meadows show jumping park, nestled in the foothills of the Canadian Rockies.
Dodge, whose own central bank raised interest rates this week by a quarter of a percentage point to 2.75 per cent, said it is not so much the size of increases in oil prices that will hit economies, but the pace of the hikes.
Even with this year’s jump, the rise has been gradual enough that economies have adjusted without major disruptions or runaway inflation.
For Canada, a net oil exporter that jockeys with such producers as Saudi Arabia, Venezuela and Mexico as the top supplier to the massive US market, sky-high crude prices are slightly harmful to the economy, but only in the short term, Dodge said.
He pointed out energy companies pocket rising income, but reinvestment of the cash into new oil prospects takes time to translate into new production.
Traditionally, it’s a bit of a wash — mildly negative in the short run and mildly positive in the long run, Dodge said. Obviously, it does create differences across the country in terms of its impact on different regions.
That has meant tighter labour markets in the energy-producing western provinces of Alberta, Saskatchewan and British Columbia, he said.
Noyer, who is also a member of the European Central Bank’s Governing Council, stressed that the economies of Europe and elsewhere are far less energy-dependent than they were during the oil shocks of the 1970s.
In the euro zone, each $10 a barrel jump in oil prices cuts growth in gross domestic product by 0.2 percentage points, translating into a gradual 0.6 percentage point hit over the past two years, he said. —Reuters
