Surging oil prices beginning to threaten growth

In 2004, the growth of plastics, though unabated, definitely saw a drop to some extent. Global growth of plastics in 2004, fell short of the 5-6% as envisaged earlier, but was pegged at more than 4%. This was mainly attributed to some very positive trends observed in Asia, particularly in China as well as in India. In fact, the Asian region overall performed much better. North America as well South America showed positive growth, while Europe observe modest growth, and Russia did very well. Japan, for the second year in row, recorded positive economic growth in 2004. The global economy definitely showed a growth of about 3.5-4%. With escalating oil and feedstock prices, it seems that the economic growth envisaged for 2005 at 5%, is witnessing a deceleration. Economic growth in many Asian nations like Taiwan seems to be affected by the current high price of oil, at around US$60 per barrel. Will this pose a threat to economic growth? Rising oil prices exert price pressures on various other factors like transportation, energy, etc. Besides leading to inflation, this scenario also slashes export competitiveness of countries in foreign markets When the price of oil increases by 10% in the domestic Taiwanese market, the price of petroleum and coal products will surge by 10.73%, while prices of electrical and electric engineering machinery -- two of Taiwan's major export items -- will rise by 0.24%. A 10% oil-price rise will first take a toll first on the transportation and warehousing industries and then on electricity and gas, mining and construction sectors, dragging down Taiwan's economic growth rate by 0.27 percentage points. If oil prices jump by 18%, they will drive the domestic economy down by 0.478 percentage points. The governments should not underestimate the great impact of high oil prices on the domestic economy and begin initiatives to tackle this situation with caution if the price of oil fails to show signs of cooling on the global market. If demand for oil is curbed it might lower prices later in the year.