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Greenspan says spike in oil prices will slow global growth
Tuesday, October 18, 2005 1:57:53 AM
afxpress.com
WASHINGTON (AFX) - The spike in oil prices will hold down global growth, Federal Reserve chief Alan Greenspan said
"Although the global economic expansion appears to have been on reasonably firm path through the summer months, the recent surge in energy prices will undoubtedly be a drag from now on," Greenspan said in a speech to a group of Japanese business executives in Tokyo. A copy of his prepared speech was made available in Washington
A price spike will drain purchasing power from consumers, Greenspan said
The Fed chairman's focus on the danger of a slowdown from high oil prices is remarkable given that most Fed officials in recent speeches have focused almost exclusively on the increased threat of higher inflation from the spike in energy prices
In his address, Greenspan said oil markets were subject to tremendous strain even before Hurricane Katrina and Rita came ashore in August and September
"In such tight markets, the shutdown of oil platforms and refineries last month...was an accident waiting to happen," Greenspan said
Although the high prices will be a drag on growth, the impact "is likely to prove significantly less consequential to economic growth and inflation than the surge in the 1970s," Greenspan said
The two energy price shocks on the 1970s were quickly followed by recessions. In his speech, Greenspan said the world would have to live with geopolitical and other uncertainties of the oil markets
He lamented the fact than most of the nations in the developing world have nationalized their domestic oil companies. The Fed chairman, a firm believer in free markets, said those companies have been slow to understand the market signals of high returns from investments in new infrastructure
Another concern is the oil wastefulness of the planned Chinese economy. While the US and Japanese economies have significantly trimmed their use of energy relative to their GDPs, the Chinese have not, he said
"At present, China consumers roughly twice as much oil per dollar of GDP as the United States," Greenspan noted |
