High oil prices cause problems in Asia.

Rising oil prices are hitting Asian consumers hard.

A range of worries are being expressed across the region in regard to the impact of rising oil prices. According to a July 20, 2005 piece in the International Herald Tribune (Neuilly Cedex), over the past year oil prices have increased 40 percent.

Worries for consumers center on rising prices for almost every product category from food to manufactured items to the more obvious transportation costs.

The region as a whole is like to grow more slowly. Economists interviewed for the Tribune story are rethinking the region's prospects. In late June, an economist for Lehman Brothers said that an earlier rosy forecast of 6.7 percent GDP growth for the region (not including Japan) was being cut to 6.3 percent.

Morgan Stanley, which had earlier also forecast 6.7 percent growth for the region said that this forecast might be lowered by a full percentage point.

Morgan Stanley was especially worried for Taiwan and Thailand. The economies of these countries are already fragile and if oil prices stay high, these countries could face recession next year.

Slower growth caused by rising oil prices impacts consumers in several ways. The cost of oil siphons off profits meaning that companies in the region will likely reduce hiring - if not actually eliminate jobs.

South Korea has already seen its unemployment rate rise to 3.8 percent, the highest in five months, according to the Tribune story.

Consumers are also being affected by rising interest rates. Worried about oil-induced inflation, some central banks in the region are already raising rates. Taiwan and Thailand are recent examples. For the most part, inflation in the region is currently under control, but the struggle for control will become more difficult the longer oil prices remain high.

Rising interest rates affect consumer spending by limiting credit for purchases of non-durables. The higher rates also affect the housing market by reducing household formation and the associated spending for durables.

Consumer demand is something the governments of the region want to protect as oil takes it toll. Measures are already being imposed to maintain spending, especially in the more vulnerable economies.

Thailand is raising the salaries of government workers, and South Korea is extending tax breaks for car buyers, and increasing government spending.

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