- The Washington Times - Wednesday, September 21, 2005


Hurricane Katrina’s reach is global, as higher energy prices cast a cloud of uncertainty over a world economy that otherwise is on track to log solid growth this year, it was reported yesterday.

The global economy is projected to grow by 4.3 percent in both 2005 and 2006, with the projection for 2006 slightly lower than the growth rate previously predicted, the International Monetary Fund said in its latest World Economic Outlook.

“The expansion remains broadly on track … although the risks are still slanted to the downside,” the IMF said.

One of the biggest risks is the possibility that energy prices will march higher, causing consumers and companies to turn more cautious, slowing economic activity.

At the least, energy prices — already elevated before Katrina struck the Gulf Coast in late August — are expected to nibble at world economic growth.

While the 4.3 percent growth projected for the world economy this year is healthy, it would mark a slowdown from the blistering 5.1 percent increase posted in 2004.

The IMF’s forecasts are based on an assumption that world oil prices would average $54.23 a barrel this year and $61.75 a barrel in 2006.

While manufacturing and trade are strengthening around the world, the continued rise in energy prices “exacerbated by the catastrophic effects of Hurricane Katrina is an increasingly important offset,” the IMF said. The storm knocked out oil production and refining facilities along the Gulf Coast.

Spare oil production capacity will probably remain low and short-term supply uncertainties persist. Along with strong demand, those factors will keep supplies tight and may keep upward pressure on energy prices.

For the United States, the IMF is predicting that economic growth will increase by 3.5 percent this year and 3.3 percent next year. Those projections are lower than the 3.6 percent growth for 2005 and 2006 the IMF had forecast in April.

The downgrade comes from the belief that higher energy prices will force consumers and businesses to spend less on other things, slowing overall economic activity.

In the United States, oil prices briefly surged to a high of $70.85 a barrel on Aug. 30, when Katrina made landfall. They have moderated since then and are now trading above $66 a barrel.

Katrina destroyed lives, homes and businesses in Louisiana, Mississippi and Alabama, and disrupted the flow of cargo in and out of the country.

The IMF’s new forecasts, however, still would represent respectable growth for the United States, although not as robust as last year’s 4.2 percent gain, the strongest showing since 1999.

What happens in the United States — the world’s largest economy is important because of potential ripple effects it may have on other countries’ economies.

Federal Reserve Chairman Alan Greenspan and his colleagues said Tuesday they don’t believe fallout from Katrina poses a “persistent threat” to the United States’ economic health.

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