The government's decision to pass on the rise in oil prices to consumers not only inflates their petrol and diesel bills, it also fuels concerns over a possible economic recession, analysts said.
Global equity research firm Lehman Brothers has downgraded its GDP growth forecasts for Asia region citing the surge in oil prices as a major reason, while a number of economists have expressed similar fears.
Economists expect the recent hike in petrol and diesel prices to not only propel a sharp rise in household expenses, but also see an increased transportation costs eventually affecting the manufacturing and agricultual sectors.
The continuing downslide in the stock market coupled with sluggish commodity prices, interest rate hike and inflation figures, have led to a number of economists forecasting an economic slowdown in the near term.
International Monetary Fund's Managing Director Rodrigo de Rato said in a press conference in Australia that the global economy faces growing downside risks, such as rising oil prices, plunging stock markets and global trade imbalances.
Lehman Brothers said in its latest Global Weekly Economic Monitor Report that Asia, excluding Japan, has entered a cyclical economic slowdown phase and there are further sharp downside risks from current levels.
The investment bank's senior economist Robert Subbaraman said the persistence of high oil costs is forcing the Asian governments to pass on more of the rising energy costs to consumers and companies.
The global crude oil prices have jumped more than 17 per cent so far this year, following a surge of nearly 40 per cent in 2005, leading to increased retail energy prices across a number of Asian nations, including India, Malaysia and Thailand.
The continued surge in oil prices and the delayed pass-through to households and companies is having a 'double-whammy impact' on the economies, Subbaraman said.
The governments had previously expected the initial run-up in oil prices in 2004 to be temporary, leading to absorption of a large portion of high costs through generous subsidies and capping of rise in retail prices, Lehman Brothers said.
Eventually, the economies are now bearing the brunt of past oil prices rises as well as the continued jump in this year, it added.
The oil import bill of the Asian countries, excluding Japan, has more than doubled in the past two years, the report added.
The Centre for Monitoring Indian Economy said in its monthly report that the country's GDP growth was likely to slow down to 7.9 per cent in the current fiscal, as against its earlier forecast of a 8-8.25 per cent growth.
The CMIE has cited the moderation in manufacturing output and a fall in the farm production as major reasons for downward revision to the economic growth estimates.
The economic thinktank has forecast a growth of 2.5 per cent in the agricultutal and allied activities during 2006-07, down from a growth of 3.9 per cent last fiscal.
However, Lehman Brothers has maintained its bullish medium term outlook on Asia on the back of continuing strength in fundamentals, as factors like growth in middle class and rapid urbaniztion are set to continue.
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