Oil could derail global growth

(November 5, 2004) While the global economy has powered on for over a year, the high cost of fossil fuels threatens to put on the brakes, according to The Conference Board of Canada.

In its World Outlook – Autumn 2004, the think-tank says the world economy should experience growth of 4% for the current year, which would be the best performance since 2000. But for 2005, growth is seen slowing to 3.1%.

“Oil prices are the wild card for the world economy,” said Kip Beckman, principal research associate at The Conference Board. “Domestic demand for goods and services in major oil-importing countries will slump if households have to spend more on energy products. Business investment spending will suffer as well, should higher energy prices increase costs.”

Oil prices are expected to decline gradually through 2005, as OPEC and non-OPEC countries alike increase production. The world’s major economies are expected to keep inflation in check through modest interest-rate hikes.

The report calls for North American GDP growth of 3.5% next year, while South America should approach 4%. Europe’s economy is seen expanding by 2.3% in 2004 and at a similar pace next year.

The Asia-Pacific region will continue to lead the world through the end of 2004 with expansion of 5%, but will weaken slightly in 2005 due to slower growth in Japan.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com