WASHINGTON (AP):
THE GLOBAL economy will experience slower-than-expected growth this year because of the Iraq war, and if the conflict does not end quickly the consequences could be much more serious, the International Monetary Fund said yesterday.
In its latest economic forecast, the IMF slashed its projection for global growth this year by one-half percentage point. It blamed most of the downward revision on the jump in oil prices that occurred late last year and early in 2003 as markets grew worried that a U.S.-led invasion of Iraq would disrupt global oil supplies.
The IMF noted that since mid-March oil prices have retreated somewhat and global stock markets have rebounded, two favourable developments which it said should support its reduced forecast of 3.2 per cent global growth this year, down from a 3.7 per cent projection the IMF made in September.
But the IMF cautioned that this scaled-down forecast would be seriously jeopardised if the war in Iraq does not end quickly.
"A more prolonged and destructive conflict in Iraq could have a severe impact on global activity," the IMF said. "Such a development would clearly slow -- and could choke off altogether -- the already fragile recovery in industrial countries."
IMF chief economist Kenneth Rogoff said that even with a quick conclusion to the Iraq war, the global economy will be facing a number of other risks from the lingering effects of the bursting of the stock market bubble and the rising threat of a housing bubble in the United States.
"For the past three months, concerns over conflict in the Middle East have weighed heavily on the global economy," Rogoff told reporters yesterday. "But in our view, it is not just the war -- a number of other risks weigh on the outlook."
The IMF projection of 3.2 per cent growth this year would be only slightly better than the 3 per cent increase in global output in 2002. For 2004, the IMF projected a significant rebound to 4.1 per cent growth as oil prices retreat further and global financial markets begin to recover from a prolonged slump in stock prices.
The IMF's latest "World Economic Outlook" predicted that the U.S. economy would grow by just 2.2 per cent this year, 0.4 percentage point below its September estimate. The IMF forecast U.S. growth would rebound to 3.6 per cent in 2004.
The U.S. performance would still be far better than other major industrial countries. Growth in the 12 nations of Europe that use the euro as a common currency was projected at a weak 1.1 per cent this year and a slightly stronger 2.3 per cent in 2004.
Japan, which has struggled for more than a decade with a slumping economy and now deflation, was projected to see growth of just 0.8 per cent this year and a still-weak 1 per cent in 2004.
The IMF said the global economy remains seriously imbalanced, with the United States supplying most of the forward momentum because of the failure of Europe and Japan to jump-start their own economies.
The IMF said America's rising trade deficit was a "a source of serious concern," especially in light of the fact that the U.S. government's budget deficit has begun to rise, increasing the need for the country to tap global capital markets at a time when the U.S. dollar is weakening in value against other currencies.
