War fears contribute to lower UN forecast for US, European economies

The increasing possibility of war with Iraq has cut up to half a percentage point from already modest projections for Western economic growth, according to the latest survey by the United Nations Economic Commission for Europe (ECE).

The ECE's Economic Survey of Europe 2003, which covers Western and Eastern Europe, the United States and Canada, forecasts 2.5 per cent growth in US gross domestic product (GDP) and 1.6 per cent for the European Union (EU). By contrast, a UN report on the world economic situation issued two months ago projected US GDP growth at 3 per cent and EU GDP growth at 2 per cent.

"Uncertainty surrounding the short-term economic outlook is amplified by the increasing possibility of war with Iraq," the ECE said in a statement regarding its survey. "This has already contributed to the weakening of consumer and business confidence and has fostered a wait-and-see attitude with regard to big spending items. Even the available baseline forecasts, which assume that there will be no military conflict, however, suggest only a moderate strengthening of growth in the global economy in the course of 2003."

Both reports allow that a variety of risks exist that could push growth rates for the world and key regions even lower. These include geopolitical tensions in West Asia, rising petroleum prices and macro-economic imbalances.

One bright spot noted by the ECE is the continuing resilience of economies in transition in Eastern Europe and the former states of the Soviet Union, where 4.2 per cent growth in GDP is forecast for 2003. These economies grew by 4.8 per cent and 4.1 per cent, respectively, in the difficult economic years of 2001 and 2002.