As Oil boils,....

If crude oil prices stay high for an extended time - Asian countries from China to India might not be able to sustain the growth pace that has driven the global economy .While projections based on uncertainties such as oil prices and the Middle East's future must come with big caveats, in some worst-case scenarios inflation could double and growth rates halve in parts of Asia. That would deprive the world of a growth driver just as developed countries start to get back on track. Sanjay Mathur, an Asia economist in Singapore for RBS and another RBS economist Erik Lueth estimated that at $120 a barrel, the oil price would shave off 1.5 percentage points off growth this year for Asia ex-Japan. Their baseline, with $80 a barrel oil, is for 8.2 percent growth, which drops to 6.7 percent for $120 a barrel. On Monday, New York crude reached its highest level since September 2008. If oil stays around $120 a barrel this year, RBS predicts that South Korea's growth rate could fall to 1.6 percent from the projected 4.2 percent. China's growth, meteoric in recent years, would be cut to 8.8 percent from 10 percent while India would have 6.0 percent growth rather than 8.1 percent. Taiwan could see only 1.3 percent growth rather than the 4 percent that RBS forecast based on $80 oil. RBS said India could see 2011 inflation double to 14 percent from the currently predicted 7.2 percent, while Indonesia's could hit 13.9 percent from a forecast 6.3 percent.In 2008, when oil spiked to above $100 for the first time, inflation rose in Asia . Consumer spending in Asia could be hit as its households face higher inflation and also spend more on fuel. Some governments such as Malaysia and Indonesia have strong enough fiscal positions to help lower-income citizens cope with higher food and energy costs. But others, such as India and the Philippines, cannot maintain or increase subsidies. Higher oil prices indirectly can exacerbate cost problems, for instance by pushing up the price of fertilisers. HSBC sees China, India, the Philippines, Thailand, Taiwan and Vietnam as at risk from inflation given their high correlation between energy prices and core CPI. However, some of those countries have fuel subsidies that shield the consumer from price rises. India is one of the top risk countries in terms of the cost of subsidies, according to Citibank research. Risks for oil price shocks appear greatest in India and Pakistan, which already have "very high" deficits and "do not have sufficient offsetting oil revenues to provide a cushion," Citi economists Johanna Chua and Wei Zheng Kit wrote. Indonesia and Malaysia have large fuel subsidies, but are cushioned to some degree, thanks to having oil exports.

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