A U.N. report says rich countries will be able to absorb rising oil prices, without creating the major shocks that sent their economies reeling in the 1970s. But the U.N. Conference on Trade and Development (UNCTAD) says in its annual Trade and Development Report that higher oil prices are badly affecting many developing countries.
UNCTAD says surging oil prices have not depressed economic activity, and have not fuelled inflation in developed countries, as happened in the 1970's. It says developed countries are now much less oil-dependent, and use energy more efficiently.
Senior U.N. Economist Heiner Flaasbeck says, even the catastrophic effects of Hurricane Katrina on the U.S. Gulf coast, where much of the U.S. oil refining capacity is located, will have only a temporary impact on oil prices. He says the U.S. decision to free emergency oil reserves will not bring the price of oil down, because many of the refineries are not working. And, he adds, he expects speculative forces to drive up prices, but only for a short period.
"We think that will not be a major impediment to growth," said Mr. Flaasbeck. "We have seen that the overall level of oil prices that we have reached now, something like $70 dollars [a barrel], has not [made a] major dent into the world economy. And, if we do not have a prolonged additional rise, if it remains at that level, I would not be too pessimistic, just from the oil side, for the world economy."
But, the picture is not so bright for developing countries. UNCTAD says the high cost of oil is placing a heavy burden on poorer nations that spend around five-percent of their gross domestic product on oil. This, compared with the two-to-four percent that wealthier nations pay.
UNCTAD's annual report finds the world economy is still expanding, but at a slower rate because of rising oil prices and the large global current-account imbalances.
The report says several Asian countries, especially China and India, have emerged as new engines of economic growth. But, it warns that the United States, which is the main engine of growth, may run out of steam before these or other countries or regions are able to take over that role.
The report finds the world economy grew by almost four percent last year, the best performance since 2000. But, this is expected to drop to three percent in 2005.
UNCTAD Secretary-General Supachai Panitchpakdi says even Africa, which for many years had been excluded from the benefits of globalization, grew by 4.5 percent in 2004. Unfortunately, he says this wealth is not evenly distributed in all parts of Africa.
"It does seem that only those countries that are lucky enough to be producing the kind of basic commodities, in particular energy, that is in great need in the world - they are benefiting from it. That is why we were saying that this will have to be redistributed in a way that would have to re-invest the money in productive capacity, so that they can maintain the trend," he explained.
The report urges developing countries to use recent windfall gains from higher commodity earnings as an opportunity to step up investment in infrastructure and manufacturing capacity. It says both of these are essential for boosting development.