Economic recovery hopes hinge on an end to Iraq crisis

  • 6 March 2003

Business expectations for the state of the world economy by the end of July show a marked improvement, an international poll covering 90 countries disclosed today.

But exceptionally low assessments of the current economic situation have not changed since October 2002, according to the quarterly poll by the International Chamber of Commerce and the Munich-based Ifo economic research institute, carried out last January.

Dr Gernot Nerb, Ifo’s Director of Business Surveys, said: “The improvement of the forward indicator from 96.5 to 101.8 can be explained by widespread expectations that the Iraq crisis will have been resolved one way or another six months from now.

“Similarly, uncertainties about the course of events in Iraq have depressed business views of the world economic situation at the present time, leaving the current indicator unchanged for two successive quarters at 69.4,” Dr Nerb said. The same indicator stood at 78.5 at the end of September.

More than 1,100 executives, business economists and economic analysts from every continent contributed to the ICC/Ifo World Economic Survey.

The overall ICC/Ifo business climate indicator, made up of assessments of the current state of the economy and expectations six months in the future, was up slightly, reaching 85.9 compared with 83.2 in the survey published in December 2002.

This was still well below the long-term average since 1989 of 93.7 and was entirely due to the improvement in forward expectations.

Dr Gernot Nerb Ifo Institute
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Ifo’s analysts warned against interpreting the small improvement in the world economic climate as a clear sign that worldwide recovery has started. They said the poll could be showing no more than an interruption of the downward trend.

“The next survey in April will be of crucial importance. It will most likely take place in a situation of diminished geopolitical uncertainty, with fundamental economic trends becoming clearer.”

The poll showed that 45% of respondents view global deflation as a threat, including 5% who viewed it as a “strong” possibility. Fears of worldwide deflation were greatest in Asia (68%) and the Middle East (67%). The Ifo questionnaire defined deflation as “sustained price decreases over an entire economy”.

A regional breakdown showed that the economic climate stabilized at its low level particularly in Western Europe and marginally improved in North America and Asia. Growth in Europe over the next six months will continue to lag behind the world average, in the view of the business experts.