Analysis: Oil price rise unlikely to slow developing growth

NEW YORK (Reuters) - The rise in crude oil prices to two year highs in recent weeks is unlikely to cause a major shock to economic growth in the developing world as it has sometimes in the past.

Prices for light crude oil settled above $90 a barrel and U.S. unleaded gasoline topped $3 a gallon at the pump this week for the first time since October 2008, raising concerns for economic growth especially in non-oil-producing emerging market economies.

Oil demand will set a new all-time high next year after it recovered far faster than anyone predicted in 2010, a Reuters poll of 12 top oil-tracking analysts showed on Wednesday.

Driving that surge has been China, where oil demand increased 14 percent in the first half of 2010, about 3 percentage points greater than economic growth, according to the International Monetary Fund.

But economists don't expect the rise in oil prices to hit growth in emerging economies, where in the past it sparked inflation spikes and slowed developing economies in oil-importing nations as costs rose.

For the emerging markets as a whole, and the global economy too, rising oil prices may be a slight negative, said Sara Johnson, senior research director of global economics at IHS Global Insights in Lexington, Massachusetts.

"The reality is that the growth of emerging markets is driving up oil prices but oil prices are not restraining emerging economies in any significant way," Johnson said.

Higher prices can reduce demand and boost production costs, but the impact will not be that great as many countries have fuel subsidies, which eases manufacturing, transportation and consumer costs, she said.

"It's not a total decoupling but certainly there is great potential for these countries to develop their domestic markets and we're seeing very vibrant growth in consumer spending in many of these countries in contrast to the last decade," she said.

To be sure, higher crude oil prices are a negative for many Asian economies, and could add to inflationary expectations.

"The impact of oil prices is different for many countries and in some cases it's relatively straight forward, and in others it's not," said Eduardo Suarez, senior emerging market strategist at RBC Capital Markets in Toronto.

The Russian and Venezuelan economies are strongly tied to oil prices while Mexico, a big supplier of crude to the United States, is much harder to quantify, Suarez said.

Oil accounts for 8.0 percent of Mexico's gross domestic product, but the country also imports a lot of refined oil products and the government subsidizes gasoline prices, helping blunt manufacturing and transportation costs, Suarez said.

High oil prices will likely reduce subsidies as governments cannot afford to cover the costs, said Timothy Parker, a natural resource-focused fund manager at T. Rowe Price Group Inc (TROW.O), which oversees more than $440 billion in assets.

Stronger consumer demand and a booming expansion will help offset a rise in oil prices, he said.

"Is it going to break $100 next year at some point? Probably. But it's more of a headwind than something that stops you in your tracks," Parker said.

"The higher price of oil could steal some share of the wallet, but it won't be enough to offset the internal growth" in emerging markets, he said.

Global Insight, in conjunction with affiliate IHS Cambridge Energy Research Associates, sees oil averaging $88 a barrel next year, $95 in 2012 and topping $100 by the end of 2013.

Others peg oil higher. Hussein Allidina, head of commodity research at Morgan Stanley, estimates crude will average $100 a barrel in 2011 and $105 a barrel in 2012. Goldman Sachs sees oil at more than $100 a barrel in 2011.

"Any strength in crude oil prices is a reflection of an expanding global economy, and clearly there are other forces that are supporting emerging markets," said IHS' Johnson.

"If anything, rising crude prices are simply moderating the expansion, they're not threatening emerging markets with a return to recession," she said. "If the emerging economies were that vulnerable, we would likely see crude oil prices falling back."

(Additional reporting by Alina Selyukh)

(Reporting by Herbert Lash)