Economy & Trade, Europe, Global, Global Geopolitics, Headlines

ECONOMY: Threat of War Fuels Global Uncertainty

Gustavo Capdevila

GENEVA, Mar 3 2003 (IPS) - The short-term outlook for global economic growth is uncertain, and depends on whether or not a war against Iraq is launched, according to the annual report of the United Nations Economic Commission for Europe (UNECE), which was released Tuesday.

Hopes for a revival of the international economy after the marked slowdown of 2001 were frustrated last year, and to that is now added the risk of a military conflict in Iraq, Dieter Hesse, director of UNECE’s economic analysis division, said at the presentation of the new report.

Hesse noted that while viable hypothetical scenarios could be designed, it was impossible to precisely foresee the economic consequences of a conflict in Iraq, which would depend on its duration, the extent of the damages caused, and the eventual expansion of the war or destabilising effects felt outside that country.

According to the UNECE analysts, the military and civilian budgetary costs that a war would entail for the United States and other countries that might be involved are uncertain, as are the broader effects the conflict would have on the market for oil and the global economy.

The impact on the world economy would not only depend on the behaviour of oil prices, but also on the effect of an increase in defence spending, and on how the conflict would affect consumer and business confidence, they stated.

Hesse pointed to signs of declining confidence among consumers and business, which are advising a cautious stance towards major investment projects.

In Europe, consumer confidence fell in January this year to the lowest levels seen since 1996, while such a low level of confidence has not been seen among consumers in the United States since 1993, said the report.

Another indication of the decline in confidence has been the performance of the stock markets, which in January posted the lowest share prices seen in six years, after three years of a downward trend that amounted to the steepest drop since the 1929 stock market crash and the Great Depression.

By late December 2002, share prices had fallen by an average of 40 percent in the United States, 50 percent in western Europe, and 60 percent in Japan, with respect to the peaks reported in early 2000.

Another long-term concern highlighted by UNECE involves the effects that an upheaval in petroleum prices would have on growth of productivity in net oil-importing countries.

Nevertheless, forecasts for this year based on a hypothesis of no war in Iraq point only to a moderate recovery of growth for the global economy, which could then pick up steam in 2004, said the report.

The authors wondered how far confidence and share prices would fall, with the consequent negative effects on private sector spending in 2003. They clarified, however, that these phenomena were not only a result of the threat of war in Iraq, but also of a dim outlook for employment and returns.

UNECE focuses on 55 countries in North America, western, central and eastern Europe, Israel, and the Community of Independent States (CIS), made up of the former Soviet Union republics.

The four other United Nations economic commissions cover Africa, west Asia, the Asia-Pacific region, and Latin America and the Caribbean.

UNECE noted that economic growth in eastern Europe and the CIS economies ”demonstrated surprising resilience to the global slowdown in 2001 and 2002, thanks to the strong growth of their domestic demand and, in several cases, their unexpectedly good export performance.”

Growth rates posted by the two areas were generally higher than those of western Europe, the authors observed.

Gross Domestic Product (GDP) in the CIS grew 4.8 percent in 2002 ”due to the still significant momentum from the previous year of rapid growth and a continuing boom in some of the Caucasian and central Asian countries.”

Among the most outstanding examples of GDP growth last year were Turkmenistan (21.2 percent), Armenia (12.9 percent), Azerbaijan (10.6 percent), Kazakhstan (9.5 percent), and Tajikistan (9.1 percent).

Turkmenistan stood in a category of its own, said the report, after registering GDP growth of above 17 percent for four years in a row. Furthermore, it is expected to achieve 16 percent expansion in 2003.

But UNECE also underlined that several CIS countries are heavily dependent on natural resources: gold in the case of Kyrgyzstan; aluminum in Tajikistan; natural gas in Turkmenistan; and oil in Azerbaijan and Kazakhstan.