Business gloom deepens amid fears of conflict
By Ed Crooks in Davos and Nerma Jelacic in London
Published: January 26 2003 21:32 | Last Updated: January 26 2003 21:32
news.ft.com
Business people and economists have expressed new fears about the consequences for the world economy of a US attack on Iraq, reinforcing the gloom that provoked falls in stock markets and the dollar last week.
On Friday the S&P 500 index lost 2.9 per cent to 861.4, its lowest level since October. In London the FTSE 100 fell to a seven-year low, dropping below 3,600 in intra-day trading, while continental European markets also fell close to six-year lows. The US dollar fell about a cent to $1.085 to the euro, a three-year low.
Markets may be in for another turbulent week, with a report from UN inspectors on Monday, the State of the Union address by President George W. Bush on Tuesday and Wednesday's US interest rate decision all having the potential to unsettle investors.
"The drumbeat of war, which is the biggest downside risk of them all, is beating more intensely by the day," said Gail Fosler, chief economist of the Conference Board, a US business research group.
"Markets are not looking at what companies made in the fourth quarter, they are wondering whether companies will even be there in the second quarter."
Don Evans, the US commerce secretary, admitted at the World Economic Forum in Davos that uncertainty over Iraq created extra risks for business, which companies said was holding up their investment decisions.
Charles Holliday, chairman of DuPont, said: "We have seen order cancellations in the fourth quarter. There is major global instability: no one knows quite where the economy is going to be. Until we see some resolution or some settlement, it is hard to see any stability at all."
Fears about the effect on the oil price of an attack on Iraq are seen as the biggest danger to the world economy.
Steep rises in the oil price have typically been followed by global recessions.
The Organisation of Petroleum Exporting Countries is expected to increase production if the price of oil surges following an invasion of Iraq. But there is still uncertainty over how high and how protracted the spike in prices would be.
Alan Blinder, a former vice-chairman of the US Federal Reserve, said: "As the plateau of oil prices gets higher and longer, we start looking not at a small recession as in the early 1990s but at a more serious one - and in the worst case a very serious one as in the 1970s' oil shock." |
