Current Economy (rising of prices affecting current econmy and the immediate con

Current Economy (rising of prices affecting current economy and the immediate concerns

Price volatility , especially that in fuel prices remains important determinant of current global economic performance . The results of the increase in fuel prices suggest the net effect on the economy would be negative and the precise dynamics and magnitude of this effect - especially the adjustments to the shift in the terms of trade is uncertain . Higher prices , by affecting economic activity , corporate earnings and inflation , would also have major implications for financial markets - notably equity values (upward pressure

on interest rates exchange rates (currencies would adjust to changes in trade balances dollar would become stronger ) and government financing (growth of direct subsidies on oil products in developing countries . Short-term price volatility , which has worsened in recent years , complicates economic management and reduces the efficiency of capital allocation [4] . That is , a net fall of around 0 ,5 in global GDP - equivalent to 255 billion the loss of GDP would diminish somewhat by 2008 the transfer of income from oil importers to oil exporters in the year following the 10 price increase would amount to roughly 150 billion [5] . Yet the global economic recovery is still under threat after the world 's biggest oil producers failed to endorse a plan this weekend to cut soaring oil prices by quickly increasing crude oil output (the price last week struck a 21-year high of US41 .85 59 .62 ) a barrel , partly as a result of the uncertainty brought about by the war in Iraq )[3] . However it is said oil prices are still less than half what they were at the time of the 1979 oil shocks [2] and the financial authorities have been able to hold down interest rates without risking an inflationary spiral (higher fuel prices erode profits of firms (especially of airlines , automobiles and chemical companies ) more then they have pushed up inflation . The macroeconomic consequences : fiscal imbalances would worsen , pressure to raise interest rates would grow and the current revival in business and consumer confidence would be cut short , threatening the durability of the current cyclical economic upturn . From the other hand most economists expect rising of prices would develop the so called business-to-business sector of the economy [1]

Sources

Oil Prices no Damper on Spending , Claudia H . Deutsch , New York Times May 2004

IMF Official Paints Rosy Picture of Global Economy , HYPERLINK "http /www .imf .com " www .imf .com

OPEC Won 't Oil Wheels of Economy , Nigel Wilson , May 24 , 2004

IEA EAD Working Paper (2001 , Oil Price Volatility : Trends and Consequences

The Impact of Higher Prices on the Global Economy , the IMF Report , May 2004...