With war's end, economic uptick - but no surge
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The two biggest economic pluses from the war's end are falling oil prices and an end to war-related uncertainty. "It is helpful that oil prices will fall," says David Ingram, director of international economics at the consulting firm Economy.com. "They have the same effect on the economy as taxes."Skip to next paragraph
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Oil prices peaked in March at $37.82 for a barrel of Brent crude. On Wednesday, oil for May delivery was trading at $29.18 in New York. Oil for June delivery was trading in London at $25.22. According to estimates by investment firm Lehman Brothers, each $10 drop in oil prices adds about half a percentage point to world economic growth for the year.
The other positive impact from the end of war is the "indirect and fuzzy" effect of a reduction in "the sense of risk in the global economy on household and business sentiment," Mr. Ingram says.
But analysts caution that whatever bounce the world economy will get from a reduction in oil prices and a rising certainty is offset by a number of negative factors. That's why most experts side with the IMF in expecting the end of the war to produce, at most, a mild uptick for the world economy, rather than a boom.
Perhaps the biggest factor holding down global growth is the tepid pace of economic activity in the United States, which accounts for one-fifth of global economic output. The IMF is predicting that economic growth in the US will be just 2.2 percent in 2003 before rebounding in 2004.
One sign of the current doldrums in the US economy: Earlier this week, the Federal Reserve reported that the portion of US factories in use fell, in March, to its lowest level in 20 years. Other factors holding down global economic growth include "lingering problems from the bursting of the equity price bubble, especially in Europe," says Mr. Rogoff, the IMF economist. "Weak corporate balance sheets still weigh on investment."
As a result of these and other factors, growth in the area where the currency is the euro - which accounts for roughly one-sixth of world economic output - is expected to grow at a weak 1.1 percent in 2003, while Japan is projected to grow at 0.8 percent. Prospects are strongest among the emerging economies of Asia where the IMF predicts growth of 6.0 percent. But the outlook for growth in Asia is clouded by the impact of - and fear about - severe acute respiratory syndrome (SARS).
"One hears of a fair amount of commercial traffic being canceled and a fair amount of interruption of commercial flows," says Mr. Vargo, the economist of the National Association of Manufacturers.
The global economy is still adjusting to the effects of the Sept. 11 attacks, effectively unwinding at least a portion of the so-called economic "peace dividend" that came at the end of the cold war. Signs of this unwinding include higher insurance costs, a reduced pace of global economic integration, and weaker consumer confidence. "We are already in the middle of a military buildup," notes Goldman Sachs vice chair Mr. Hormats. "Add to that homeland defense costs - government and nongovernment - and it does unwind the peace dividend."