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IRAQ: Uncertainty About War Plans Brings U.S. Economy Down
By Emad Mekay
WASHINGTON, Mar 12 (IPS) - With a possible war on Iraq looming larger than ever, the world's largest economy is showing signs of strain and shakiness, weighed down by uncertainties that include the potential cost of military action.
Analysts and economists here agree that uncertainties about Iraq, rather than a war itself, are already having a major impact on U.S. economic indicators.
On Monday, the U.S. stock markets hit 2002 lows, while the technology-heavy NASDAQ closed at only 1,278 points, a huge drop from its peak 5,048 in March 2000. The Dow ended down 171.85 points, or 2.22 percent.
Earlier this week, the non-partisan Congressional Budget Office predicted that the U.S. budget deficit would reach more than 1.8 trillion dollars over the next 10 years - figures that do not even include the possible price of a war in Iraq.
The administration of President George W. Bush estimates the deficit for this coming fiscal year at 304 billion dollars - without counting the cost of war. Once that is added in, the shortfall could jump to over 400 billion dollars.
The money spent on war would mean less money directed to health care, education and social care and to other sectors that could revitalise the fragile economy.
Uncertainty is the main factor for the economy's poor performance, according to Edwin M. Truman, senior fellow at the Washington-based Institute for International Economics. "No doubt it's having some effect, including on oil prices, which clearly are having a direct effect on the economy."
Lack of clarity around the possible war on Iraq accounts for about one-half of the uncertainty, he suggested.
More bad news emerged Friday, when the Labour Department announced the unemployment rate for February edged up slightly from 5.7 to 5.8 percent.
U.S. businesses cut 308,000 jobs last month, the biggest reduction since the economy stalled after the Sep. 11, 2001 terrorist attacks. Job losses were widespread, with retail trade and services posting especially large declines, said the department.
Consumer confidence, one of the main linchpins of U.S. economic vitality, sank last month to its lowest level since October 1993.
"This war is having a really corrosive effect on consumer confidence," Gail Fosler chief economist at the Conference Board, a global research organisation that tracks economic indicators, told the TV show 'Newshour' on Monday.
"The uncertainty over the war makes consumer spending and businesses investments lower," said Mark Weisbrot, co-director of the Washington-based Centre of Economic and Policy Research. "Those two things that could possibly prevent a recession are being influenced by the uncertainties surrounding the war."
Even if an attack on Baghdad goes according to Bush's plans for a speedy bloodless war, the fallout from the operation, including doubt about the international order and the possible spectre of more revenge terrorism, is adding to long-term confusion over the direction of the world economy.
U.S. occupation of Baghdad will not dispel the uncertainties but could likely swell it, says Weisbrot.
"Everybody is going to want the U.S. out of there. It's going to be a prolonged conflict. There will be uncertainties related to that too," he said. People who are looking ahead don't see any light at the end of the tunnel.''
"And if you are a businessperson thinking whether you should invest or even a smart consumer looking at the housing market for example ... you're going to think again."
With the administration mum on the possible cost of the war, or even how long it expects the invasion to last, people looking for indications are left scratching their heads.
U.S.-based IT company GTSI Corp., for example, said Monday the threat of war and delays in the 2003 federal budget process are damaging their customers' ability to spend money. The company's stock fell 30 percent Monday after reporting first-quarter losses it blamed on the war.
Many other businesses are said to be delaying investments and hiring.
(END/2003)
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