High oil prices 'threaten growth'

They say that unless oil prices retreat from their current highs, world economic growth will slow.

The cost of a barrel of oil fell to $43.68 in Asian trading on Monday, just 2% off the record high of $44.77 set in New York last week.

The concern is that consumers and firms may rein in spending if they have to pay more for products such as petrol.

British Airways, Europe's second-biggest airline, said on Monday that its fuel surcharge for long-haul passengers is to more than double from £2.50 to £6 per flight.

BA said it had taken action as fuel costs have jumped 45% in the past year and are set to top £1.14bn this year.

Growth threat

Herman Remsperger, chief economist at Germany's central bank, said his country's growth forecasts would have to be downgraded if oil prices do not ease.

"One will have to factor in a small reduction in growth and employment," he told the Welt am Sonntag newspaper.

Germany, the eurozone's biggest economy, is only tentatively emerging from an earlier slowdown, with growth for 2004 currently forecast at between 1.6% and 1.7%.

Ifaz Ali, chief economist at the Manila-based Asian Development Bank, told the AFP news agency that oil prices now pose "a serious threat not only to Asia, but globally as well".

"If this increase in oil prices is combined with an increase in interest rates, that could be even more damaging," he said.

New territory

In June, the US Federal Reserve raised interest rates for the first time in four years in an effort to pre-empt a rise in inflation, and is widely expected to do so again in the weeks ahead.

Last week, Dr Fatih Birol, chief economist at the International Energy Agency, told BBC News Online that the oil price rally could shave as much as half a percentage point off global growth this year.

Oil prices have broken through a series of historic highs over the past month, fuelled by soaring global demand and worries over unrest in the Middle East.

Friday's price of $44.77 is highest level on the New York Mercantile Exchange since it began trading oil futures 21 years ago.

Oil costs about 30% more than it did at the beginning of the year.

Yukos fears

Uncertainty over the future of Russian oil giant Yukos, which accounts for about 2% of global oil production, have also contributed towards the rise in oil prices.

Yukos faces possible bankruptcy after being presented with a multi-billion dollar tax bill.

Analysts said at the weekend that prices are unlikely to fall back in the short term until the Yukos situation is resolved.

But many experts believe that with global oil production struggling to keep pace with demand, prices are likely to remain above $40 a barrel even if Yukos' future is assured.