GDP growth threatened by Middle East turmoil - US consultant

23 March 2011 20:09  [Source: ICIS news]

HOUSTON (ICIS)--The global economy will continue expanding in the upcoming years, but turmoil in the Middle East could temper that growth since it produces so much of the world's oil, an economist said on Wednesday.

Overall, global GDP should increase by 3.6% in 2011, slightly above average, said Tim Hopper, chief economist for Chemical Market Associates Inc (CMAI).

Hopper made his comments during CMAI's World Petrochemical Conference.

Economic growth should be 4.0%  in 2012 and 3.8-4.2% in 2013-2016, Hopper said.

"The fundamentals for the current business cycle are overwhelmingly positive," he said.

In the developed world, interest-rate policies remains favourable towards growth, Hopper said.

Moreover, companies will likely increase profits by spending more on capital and labour, he said. As a result, consumers will earn more money.

Developing nations will lead this expansion, Hopper said. In fact, governments in many of those nations may tighten monetary policies if inflation become too high.

Meanwhile, growth in developed economies will lag, dragged down by excessive government debt, Hopper said.

For both regions, growth could slow because of political turmoil in the Middle East and north Africa, Hopper said.

While the region makes up only 5% of the world's GDP, it produces 34% of its oil, he said. Already, oil prices have increased because of the war in Libya.

If oil prices rise by 20% and maintain that level, this could slow the world's GDP growth by roughly half a percentage point, Hopper said. If prices rise by 40%, GDP growth could slow by about 1 percentage point.

If oil prices rise high enough, the US could slip into a mild recession, and Europe could fall into a stronger downturn.

"That makes the events in the Middle East and north Africa the most dangerous sources of risks," he said.

In fact, the Middle East poses a greater threat to the world's economy than the disasters in Japan, Hopper said.

Japan represents 7% of the world's GDP, he said. Reconstruction will cost about $200bn (140bn).

The CMAI conference lasts through Thursday.

($1 = €0.70)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Al Greenwood
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