NCPA - National Center for Policy Analysis

Outcome in Iraq Will Impact World Economy

March 20, 2003

A swift and decisive defeat of Saddam Hussein and a regime change in Baghdad could go a long way toward getting the world's major economies back on track, analysts predict. Conversely, if the war is prosecuted slowly and fitfully and there are unpleasant surprises, the impact on the world's already tottering economies could be severe.

In the event of a short war:

  • The $45 trillion global economy will grow a modest 3 percent this year -- below the average for the past two decades -- and then to accelerate next year, according to Michael Mussa, former chief economist of the International Monetary Fund.
  • Macroeconomic Advisers expect U.S. economic growth to jump to about 4.5 percent for the second half of the year from roughly 2 percent in the first six months.
  • Prospective growth in Japan, however, would fall by 0.4 percentage points in the fiscal year ending March 31, 2004 -- as that country continues to suffer from deflation coupled with its drawn out banking crisis.

Economists warn that much will hinge on future oil price levels.

Source: Bob Davis, Rebecca Buckman and Christopher Rhoads, "Growth of World Economy Rests on Outcome of U.S. War on Iraq," Wall Street Journal, March 20, 2003.

 

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