Talking to reporters in Beijing on Monday, Stephen Roach, chief economist of investment group Morgan Stanley believes that what the world is experiencing constitutes a "full-blown oil shock".
"In real terms, a $50 barrel of oil is about 65% above the level that prevails of the level of the four preceding years, and a 65% increase in oil when the consumer price index is only going up about 2% does qualify as a full-blown oil shock in my opinion," he said.
Predicting economic growth for the first quarter of next year, Roach said the developed economies of the US, Europe and Japan would grow at 1.5% because of high oil prices.
"Right in the danger zone of a world already tipping into recession, so if anything else were to happen, either on the oil front or any other front there is a good chance of recession next year."
Coming on the heels of the recent US election and the news that the American budget deficit is now at a record high of $412.55 billion, Roach says that the dollar needs to continue its downwards spiral, losing as much as another 10% to 15% in the coming months.
"I hope the Bush administration will recognise the need for adjustment. It is an important part of current capital readjustment in the US."
Bush has been accused of having
a reckless fiscal policy
Describing George Bush's fiscal policy as reckless, he also issued warnings for Asian countries to be ready to adjust their own currencies should the dollar fall.
This comment had particular resonance for China whose Renminbi currency, which is fixed to the dollar at a rate that has largely remained unchanged, has come under fire in the past from US politicians who say it is undervalued. This, say its critics, gives Chinese exports to the US an unfair advantage.
"I agree that in the next few years both Chinese and Asian currencies will need to appreciate against the dollar," says Zhang Bin, a currency specialist with the Chinese Academy of Social Sciences. "I would advise the Chinese government to do this even though it will in the short term have a detrimental effect on the economy."
Adjusting their currencies in line with dollar depreciation, says Roach, would suggest fiscal maturity, as well as stave off potential protectionist measures that could emanate from US leaders looking for a foreign scapegoat to blame for domestic economic malaise.