With war's end, economic uptick - but no surge
Peace is good, but not good enough to jolt the world economy out of its current lackluster performance. That's what experts say about the global economic impact of American combat operations ending in Iraq. President Bush said earlier this week that victory in Iraq was "certain" and the Pentagon has begun to halt troop deployments to the war zone.Skip to next paragraph
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Still, "nobody is optimistic," about the war's end triggering a rapid recovery in the world economy, says Frank Vargo, vice president of international economic affairs at the National Association of Manufacturers, a trade group here.
Growth will be "average or med-iocre," adds Davis Wyss, chief economist at Standard & Poor's, the investment data and analysis firm.
The reason: The benefit of stabilized oil prices and bolstered confidence is offset by deeper problems, from corporate debt loads to the burden of higher security costs.
At the same time, the end of the war confronts the US and its major economic partners with an important challenge. A decades-long trend of globalization and expanded trade, some worry, could be dampened by the politics surrounding the war. "Can we overcome the rancor from the pre-war diplomacy in order to make progress on trade and monetary issues?" asks Robert Hormats, vice chairman of Goldman Sachs International, an influential global investment-banking concern. "The jury is out."
One hopeful sign of global cooperation came Tuesday, when French President Jacques Chirac called President Bush. It was the first time the two had spoken in more than two months, since disputes over policy toward Iraq frayed their relationship.
War's end may well produce results even more surprising than a thaw in relations between Presidents Bush and Chirac. Wars - at least those lasting longer than a month - have produced profound, sometimes unexpected, longer-term effects. For example, the Revolutionary War was followed by a depression, the Civil war by falling prices or deflation, and World War I and the Vietnam War by inflation.
"In the recent period, there has been a tendency for the world economy to do badly during wars and recover afterwards," says Mr. Wyss, Standard & Poor's economist. But there is no reliable pattern for postwar economic performance. 'Sometimes it has been good and sometimes it has been bad."
Why care about the global economic outlook? On a humanitarian level, strong growth helps improve standards of living for the world's poor. On a more self-interested level, a healthy global economy benefits Americans by providing a market for US goods and bolstering the means for those overseas to invest in the US.
"The question of the hour is whether present sputtering global growth will suddenly lunge ahead into a strong immediate recovery," Kenneth Rogoff, director of research for the International Monetary Fund (IMF), told a press conference last week. "Perhaps. But our baseline [forecast] here is for subnormal growth of 3.2 percent." Late last year, the IMF was more bullish, predicting 3.7 percent growth for the world economy.