World May Return to Recession as Mideast Conflict Stokes Oil, Garner Says

The global economy may tip back into recession if oil prices reach $120 because of unrest in the Middle East and North Africa, according to Morgan Stanley.

Oil prices jumped to the highest in more than two years in New York as Libya’s violent uprising threatened to disrupt exports from Africa’s third-biggest supplier and spread to other crude-producing nations in the Middle East. Crude for April delivery gained as much as 0.7 percent to $96.08 a barrel in New York. Oil has rallied 9.2 percent since Jan. 24, the day before the first anti-government protests erupted in Egypt.

“If you go above $120 on a sustainable basis, you will have a meaningful shortfall in global growth relative to what the current consensus expects,” Jonathan Garner, Morgan Stanley’s chief Asia and emerging-market strategist, said in a Bloomberg Television interview in Hong Kong.

Garner joins economists at Mirae Asset Securities in saying another jump in oil prices could stall global growth. Political unrest that has swept from Tunisia to Yemen, Algeria, Bahrain and Iran in the past four weeks is fanning oil’s advance at a time when the world economy is emerging from the deepest recession in more than 50 years.

The global economy can withstand the surge in oil prices so long as the increase proves short-lived, the International Monetary Fund’s No. 2 official said yesterday, echoing Deutsche Bank AG and Bank of America Merrill Lynch.

Photographer: Forbes Conrad/Bloomberg

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Photographer: Forbes Conrad/Bloomberg

China’s manufacturing grew at a faster pace for a fourth straight month, indicating the economy can withstand higher interest rates, according to the Purchasing Managers’ Index for November.

Libya Violence

“It’s unlikely it would make a substantial change in the global economic outlook,” John Lipsky, the IMF’s first deputy managing director, told Bloomberg Television’s “Inside Track.”

Libyan leader Muammar Qaddafi vowed to fight a growing rebellion until his “last drop of blood,” as parts of the capital of Tripoli resembled a war zone and some of his followers and troops defected to the opposition.

“You’ve got to be concerned, particularly because of the effect on the oil price,” Bill Belchere, global chief economist at Mirae, said Feb. 21 in an interview with Bloomberg Television. “If you have the oil price spike up another $20 to $30, you can re-enter another global recession again.” Oil settled at $86.20 on Feb. 18, the previous trading day.

--Allen Wan, Susan Li in Hong Kong. With assistance from Simon Kennedy and Lizzie O’Leary. Editors: Reinie Booysen, Richard Frost

To contact the reporter on this story: Allen Wan at awan3@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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