WASHINGTON: As it did a year ago, the US economy has entered 2003 in a fretful state.
Concern about the consequences of potential war with Iraq is casting a pall over 2003 prospects much as the aftershock of the Sept 11, 2001, terror attacks did on 2002 – a year many Americans may wish to forget.
US stock prices closed out 2002 with their first three-year losing streak since 1939 to 1941, the year-end holiday shopping season held little cheer, companies still were shedding jobs by the thousands and data showed consumer moods were souring.
War with Iraq – whether and when it happens and how long it lasts – is the key to changing the economy’s fortunes in the new year, economists say.
The Conference Board, a private business research group, said earlier this week its Consumer Confidence Index dropped to 80.3 in December from a revised 84.9 in November, a far steeper fall than economists had expected.
Consumers, whose spending drives two-thirds of US economic growth, were worried about rising unemployment, up to 6% in November from 5.7% in October. But analysts said the underlying cause of sagging confidence was war fear.
“The war risks are just enormous and it’s causing people and businesses to just sit and wait,” said economist Douglas Lee of the forecasting firm Economics from Washington. “It’s the uncertainty of the situation that is the problem and if that was resolved then business could begin to move forward.”
The Bush administration has steadily ratcheted up pressure on Iraq, declaring it in breach of a United Nations Security Council resolution on disarmament and positioning forces for a strike while leaving vague when one might occur, if at all.
Economist Sung Won Sohn of Wells Fargo Bank said the potential impact on the US economy varied widely, depending on whether a war ends with swift success – as did the 1991 Gulf War – or becomes protracted and nasty.
“A quick and decisive war against Iraq would boost confidence and slash oil prices,” Sohn said. “On the other hand, a messy and costly war with terrorist attacks on oil facilities here and abroad could send oil prices to US$80 a barrel, equivalent to the price of oil during the Iranian revolution of the 1970s,” he added.
Aside from Iraq, there has been growing strain with North Korea over its renewed pursuit of a nuclear arsenal, although President George W. Bush insisted on Tuesday this amounted to a “diplomatic showdown” rather than a military one.
If some of the cloud cover lifts on the international front, analysts say several factors augur well for an economic pick-up.
Economist John Silvia of First Union Corp says corporate profits are relatively steady and personal income growth is solid even though consumers clearly are saving more.
Sohn agreed, noting: “As we enter 2003, the key is to have the consumer hang in there, not necessarily go on a spending binge, but most of all we want business confidence to pick up and that is being held back by geopolitical concerns.” – Reuters