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Plunging Oil Prices Ease Economic Pain in Asia

Oil prices are now more than 60 percent off their record highs in July. Although it still remains above $50 a barrel, in Asia, consumers and governments are benefitting from the decline. VOA's Kate Pound Dawson in Bangkok takes a look at what cheaper oil means for the region.

Hong Kong travel agent Malou Perena says her customers buying plane tickets already are benefiting from lower fuel prices.

"They already decreased the price," she said. "I think it was September, October."

Airlines are cutting the surcharges they have imposed over the past few years as oil prices soared.

Around Asia, car drivers, small business owners and governments find cheaper oil makes life a bit easier for them. But economists and transportation experts say the lower price probably will not prevent a recession in much of the region, or keep airlines from losing money.

Prices have plunged to below $60 a barrel from a peak of $147 in July, largely because the weakening global economy has cut demand, especially in the United States.

Tim Condon is the regional strategist for the investment bank ING, in Singapore. He says lower oil prices help Asian governments cope with the downturn. First, the lower prices help reduce the inflation rate, which means governments have more flexibility to cut interest rates or take other steps to stimulate the economy.

Second, for countries that subsidize consumer fuel costs, such as Indonesia, lower prices reduce that burden. And finally, with oil prices lower, consumers are able to spend a bit more on other items.

But, Condon says, lower fuel prices will not likely bring an economic rebound to Asia, which depends heavily on exports to Western developed economies for growth.

"The lower oil prices are probably coming about because of slower global growth…. What you're giving with the lower oil price to the consumers in Asia, you're sort of taking away from Asian export producers for the export markets," he said. "So I think on balance, that's probably a negative on a net basis."

If oil prices remain lower for several months, Condon says, it will help Asia offset some of the damage from the global downturn, but not all.

Airlines have been hard hit by high fuel prices over the past two years, especially in Asia, where much of the travel between countries is done by air. The International Air Transportation Association expects airlines to lose more than $5 billion this year, and over $4 billion next year.

But IATA's spokesman for its Asia operations, Albert Tjoeng, says the problem is not just oil prices.

"While it's good news that the price of oil has fallen to half its peak in July, but it's not enough to offset the impact of the drop in demand," he said. "So I think at this rate, the losses for the industry this year could even be deeper than what we had forecasted in September."

Airline passenger traffic in September sank nearly three percent worldwide, and almost seven percent in Asia - a rate IATA calls alarming. Tjoeng notes that is the first drop in traffic since the SARS outbreak hit Asia in early 2003.

To cope with high fuel prices, over the past year many airlines reduced services and cut flights, especially trans-oceanic flights, which consume a lot of fuel. Tjoeng says that lower oil prices will not be enough to convince airlines to resume those flights. He expects them to wait for passenger demand to pick up before increasing service.

For many business owners, high energy costs are only one of many problems. Sally Chu, who owns an art and antiques gallery in Hong Kong, has cut prices on her stock and is considering closing down because the weak economy has hurt sales.

"We are trying to sell to deal with this crisis. So hopefully, it will get better," she said. "We believe that the city, the local people are fighting hard, very soon the economy should be O.K."

Despite the dramatic fall in oil prices, the World Bank forecasts that next year, developing economies, such as those in Asia, will grow by less than five percent on average, down from the average of more than seven percent from 2004 to 2007. For the world overall, growth is expected to average less than three percent, well off from the five percent seen last year.