While the UN’s Economic and Social Commission for Asia and the Pacific (UNESCAP) had previously estimated Asia’s GDP would grow at a relatively high rate of 6.2 per cent this year, the oil crisis could reduce this to 5.2 per cent. Looking at the region as a whole, oil prices of “around 40 dollars (a barrel) will mean a 0.5 per cent reduction of growth,” Kim Hak-Su, UNESCAP’s executive secretary told AFP in an interview.

“If it hits 50 dollars, maybe we can estimate (a reduction of) around one per centage point of economic growth,” Kim said.

Kim, who is on a visit to Beijing, yesterday released a revised UNESCAP GDP growth estimate for Asia of between 5.7 per cent to 5.2 per cent for this year. Asian governments will have to make difficult decisions of whether to increase interest rates to control inflation, sacrificing economic growth, or to allow inflation to reflect oil prices and adopt costly pump priming measures to create more jobs, Kim said.

“It’s going to be a tradeoff - growth or inflation,” said Kim, who has worked as an international economist specialising in oil. More than two-thirds of the world’s poor live in the Asia Pacific, and Kim warned the oil crisis could worsen the situation.

“The resources are limited ... so if countries use more resources on oil, of course the allocation of resources will suffer for the poor, especially health and education budgets which are normally (already) small but very vulnerable to be cut,” Kim said.

The region, however, was better equipped to survive this crisis compared to the oil shocks in the early and late 1970s with oil-consuming countries having enough foreign exchange reserves to serve as a buffer, he said.

Higher oil prices would likely cause inflation in major oil-consuming countries, but may not lead to stagnant economic activity. “I’m optimistic that the oil price increase this time will not cause stagflation as such,” said Kim. Stagflation occurs in an economy when inflation rises at the same time as growth falls.

The world economy was also healthier now than it was during the last two oil shocks, with lower inflation levels, Kim said.

The “American economy is robust. ... The Japanese economy is recovering. The EU is stagnating but this year it will grow 1.8 per cent and Asia as a whole ... will make around five per cent plus,”  Kim said. Despite the optimism, other analysts have warned that supply disruptions in Iraq, persistent terrorist threats and the troubles of Russian oil giant Yukos could push oil prices to 50 dollars a barrel or beyond. Regardless of what measures Asian countries take to counter the price surge, the region still needs to do better at conserving oil, said Kim. “There is a lot of waste. We must go back to Asian values - thriftiness, saving and humbleness.”