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Rising Oil Prices Hit Asian Economies

The high cost of energy is raising fears of a slowdown in Asian economies. The cost of oil is dominating this week's Asia business news.

A report from investment bank Morgan Stanley says the heavy burden of oil prices, which recently climbed above 60 dollars per barrel on global markets, could weaken China's growth and push other Asian economies into recession.

Andy Xie, chief Asia economist at Morgan Stanley, says until now the growth in China's property sector has hidden the effects of rising oil prices.

"I think this is going to be a problem for the economy. For other economies that haven't had a property bubble to offset the oil costs, the impact has been more dramatic. Look at Thailand and Taiwan and Korea - the growth rates are really low," Mr. Xie says.

Massive supplies of oil are needed to fuel Asia's quickly growing industries. The region accounts for about 29 percent of the world's oil consumption.

Mr. Xie says high demand for oil in China was driven last year by its large automobile industry and heavy reliance on diesel generators in factories, but demand is softening as more coal-fired power plants come online and Beijing invests in public transportation.

But Mr. Xie says financial speculators will continue to pressure the market, due to perceptions that oil demand in Asia will remain at current levels.

"The oil traders still want to ignore the evidence of an economic slowdown in Asia. The economic data in the next coming months will increasingly point to a sharp slowdown in Asia. Only then these guys may back off," Mr. Xie says.

Rising oil prices have also prompted South Korea's central bank to lower its economic growth forecasts from four percent to three-point-eight percent.

Song Kyung-jin, spokeswoman for the Ministry of Finance, says, to spur the economy, the government will reduce restrictions on public and corporate spending.

She says around six trillion won from both public and private sector sources will be used for new infrastructure projects.

However, rising oil costs are creating opportunities for some in Asia. Australia's largest securities firm, Macquarie Bank, will enter into a joint venture with Abu Dhabi Commercial Bank in the Middle East, where rising oil prices are creating new investment opportunities and demand for financial expertise.