Would a fuel price spike destroy the Australian economy? Economy roundup

Recent petrol price hikes may already be causing plenty of hip-pocket pain for Australian consumers and businesses, but this could be just the beginning if new forecasts are correct.

Recent petrol price hikes may already be causing plenty of hip-pocket pain for Australian consumers and businesses, but this could be just the beginning if new forecasts are correct.

According to analysts at investment bank Goldman Sachs, the price of a barrel of oil could hit $US200 within the next two years because supply won’t be able to keep up with booming demand from developing economies like China.

One economist, Deutsche Bank’s Adam Sieminski, says a price rise of that magnitude would break the back of the global economy.

“Next step after $US200 would be global recession, and bad news for everybody,” Sieminski told Bloomberg.

A global recession would obviously have serious consequences for Australia, but it is not clear to what extent much more expensive fuel would itself harm our economy.

While petrol is a lifestyle staple for many households, ANZ bank research released yesterday shows a surprisingly low 3% of total national household income was spent on fuel in the first quarter of 2008.

That cost falls most heavily on the 15% of households that own three or more vehicles and buy around 78 litres of fuel per week, as much as the other 75% of households combined.

Interestingly, the research also shatters the myth that people suffer more from higher petrol prices because they have to drive more. According to ANZ, an average 11,800 kilometres was travelled per car in cities in the first quarter of 2008, compared to 8000km in regional urban areas, and 9600km in non-urban areas.

On the markets today, at midday the S&P/ASX200 is up 1.5% on yesterday’s close to 5316.1, with last night’s decision by the US Federal Reserve to keep rates on hold – suggesting it doesn’t think the economy there is going too badly – buoying market confidence. The Australian dollar is trading at US95.95c.

And new job vacancy data has been released today showing the number of unfilled job positions in the public and private sectors increased 1.1% between February and May this year to 183,600.