war in iraq


Iraq Conflict: effect on U.S. growth rate

FERI predicts U.S. growth rate Below 3 percent even in best-case scenario

January 27, 2003

NEW YORK and BAD HOMBURG, Germany, Jan. 27 /PRNewswire/ -- Today, Financial and Economic Research International (FERI) released forecast scenarios on the impact of the Iraq conflict on the economies of the United States, the Economic Monetary Union, and Germany.

"Even a quick resolution of the Iraq conflict -- i.e. a short-lived war or Saddam going into exile -- will result in GDP growth of only 2.9% in the U.S.A. this year," says Dr. Tobias Schmidt. The U.S. budget deficit would top $240 billion. FERI's outlook for the EMU countries calls for GDP growth of only 1.8%, with Germany trailing at 1.0%. However, a quick end to the conflict -- a 60% probability, according to FERI -- also represents the best-case scenario.

The next most likely scenario -- at 30% -- is continued U.N. inspections and prolonged uncertainty. As a result, U.S. growth in 2003 would be curtailed by 0.3% to 2.6%, with the budget deficit swelling to $320 billion. The impact on growth in Europe and Germany would be slightly less, with GDP declining 0.2% to 1.7% and 0.8%, respectively.

While FERI accords only a 7% chance to a third scenario -- a protracted military conflict with Iraq -- the impact on GDP would be significant: It would cost the U.S. economy a full percentage point in growth, while reducing GDP growth in Europe and Germany by 0.5% and 0.8%, respectively. Oil prices would shoot up to between $35-40 per barrel and remain there until the end of the conflict. The U.S. budget deficit would balloon to $480 billion.

Source: FERI Corp.


war in iraq