Saturday, March 8, 2008

Oil Prices Driving Recession Fears

Back in October, when oil prices were near $90 a barrel and the economy was still humming along economists said high oil prices shouldn't cut into economic growth. The economy used oil more efficiently than it did in the 1970s, and spending on gas was just a small percent of people's budget, the experts said.

Fast forward to March and you've got a sputtering economy, and economists saying $105 oil deserves a big part of the blame...

"You have a very significant restraint on consumer spending," said Chris Lafakis, an associate economist at Moody's Economy.com, an economic consultancy. "It acts as a tax would."

Lafakis said consumers spend an extra $5 billion each year for each $1 increase in the price of crude...

Both Bovino and Lafakis have similar predictions for the economy - a mild recession lasting the first and second quarters of 2008, then a modest recovery beginning in the second half of this year.

However, if oil goes to $115 or $120 a barrel - certainly not an outlandish thought given that crude prices have nearly doubled over the last 12 months - then those bets may be off.

read the CNN story

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