Energy spikes worry IMF

WASHINGTON -- Hurricane Katrina's reach is global, as higher energy prices cast a cloud of uncertainty over a world economy that otherwise is on track to log solid growth this year.

The global economy is projected to grow by 4.3 percent in both 2005 and 2006, with the projection for 2006 slightly lower than the rate previously predicted, the International Monetary Fund said in its World Economic Outlook yesterday.

One of the biggest risks is the possibility that energy prices will march higher, causing consumers and companies to turn more cautious, slowing economic activity.

''Higher oil prices are a clear and present danger," said the IMF's chief economist, Raghuram Rajan.

At the least, energy prices -- already elevated before Katrina struck the Gulf Coast in late August -- are expected to nibble at world economic growth.

While the 4.3 percent growth projected for the world economy this year is healthy, it would mark a slowdown from the blistering 5.1 percent increase in 2004.

The IMF's forecasts are based on an assumption that world oil prices would average $54.23 a barrel this year and $61.75 a barrel in 2006.

While manufacturing and trade are strengthening around the world, the continued rise in energy prices ''exacerbated by the catastrophic effects of Hurricane Katrina is an increasingly important offset," the IMF said.

Spare oil production capacity will probably remain low and short-term supply uncertainties will persist.

Along with strong demand, those factors will keep supplies tight and will keep upward pressure on energy prices.

For the United States, the IMF is predicting economic growth will increase by 3.5 percent this year and 3.3 percent next year.

Those projections are lower than the 3.6 percent growth for 2005 and 2006 the IMF had forecast in April.