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Back to archives Back to news
French Version

World money markets worry over length of war

The economic world has started to feel jittery this week with news that the war on Iraq can last longer than expected. With analysts saying the war could go on for weeks and even months, ripples are starting to be felt in stock markets all over the world.

It’s early days yet but the anxiety is there. At the Amman stock market, the share index is holding its own. However, it is said that stock markets in the region especially in Saudi Arabia and Kuwait are actually quite buoyant. They are not at all feeling down.
Having said that, there are Arab forecasters who are talking about a gloomy picture in the long run. Secretary-General of the Arab Unity Council Ahmed Joweilli in Cairo says if the war is prolonged then this will likely effect the economies of the region.

The area had already been affected in the run up to the war with the sectors like tourism, investment, commerce going from bad to worse. However, he added, the war has created an unprecedented economic earthquake in the area.

In Europe, analysts are saying financial markets have continued to nibble away at the big gains they made at the start of the Iraqi war which started on 19 March.

Traders there began this week to price in expectations of a war lasting several weeks or more and in consequence oil prices have risen and stocks fallen. US oil prices climbed to around 13 percent higher than at the beginning of the week-reversing about half their falls in the run-up to war-before falling back as traders took profits. The S&P 500 index has sunk below its level at the start of the war.

Long-term interest rates in Europe and the US also fell, as investors reversed some of the flight from safe assets at the end of last week.

Weakness in financial markets has matched rising expectations that the war will be longer than earlier believed. The chance of Saddam Hussein being ousted from power by the end of April, as measured by contracts traded on the online betting company Tradesports.com, has fallen to its lowest since early March.

Economists said the effect of prolonged conflict on the economy, while almost certainly negative, would depend on whether Mr Hussein’s regime could continue to pose a credible threat to future oil supplies as the war continued. A sustained low-level guerrilla war after Mr Hussein had fallen from power would probably do minimal damage to confidence, they said.

“If all the things that might drive oil up to $40 a barrel, such as Iraq lobbing Scud missiles at neighboring countries, were no longer a possibility, [a three-month war] would not be too bad,” said Kevin Hassett, a senior fellow at the American Enterprise Institute think-tank in Washington. “If people are still worried that Mr Hussein has something really bad for us, we could well go into recession.”

Figures released last suggested that consumers had become more confident in the first few days of the war. The University of Michigan consumer sentiment survey for March was revised upward from its earlier estimate once the sample had been extended to take in responses from after the war began.

But the underlying strength of consumption in the US remained in doubt. Official data released showed no growth in US consumer spending in January or February.

Stock markets across Asia opened early this week lower as traders digested the prospect that the war in Iraq would likely drag on, dampening demand for the region’s products in the United States.

Investors also appeared to be retreating in the face of growing fears about the spread of a global mystery virus from its epicenter in southern China. Warnings about the disease from health authorities around the world have prompted travelers to cancel scheduled trips to the region, most notably the Rolling Stones, who had been scheduled to play two historic concerts in Shanghai and Beijing this week but announced over the weekend that the dates would be postponed.

As trading began Monday morning, Japan’s widely watched Nikkei 225 stock index was down more than 1 percent, as was South Korea’s Kospi index. Traders said the market was reacting in part to a stock market drop Friday in New York, but also to the televised spectacle of a war that looks nastier than once anticipated, with images of civilians killed in a Baghdad market, and United States and British soldiers bogged down in cities that will not be taken easily.

“People used to think the war would be over in three to four weeks,” said Garry Evans, an analyst at HSBC Securities in Tokyo. “Now, the most optimistic people think it will go on for six weeks.”

Still, the most fundamentally important economic trend for Asia continued to shape up favorably: The price of oil remained much lower than once feared. Many Asian countries, particularly Japan, are heavily dependent on imported oil. In the run-up to the war, regional stock markets dropped precipitously as the price of oil climbed. With the price of oil well below the peak set earlier this month, traders have taken some reassurance.

“The war has so far had a positive effect on Asia because of the oil price,” said Andy Xie, an economist at Morgan Stanley in Hong Kong.

Of greater worry may be the effect the war will have on Asia’s exports, long the engine of regional growth. If consumers in the United States prove reluctant to spend as the war goes on, Asian exporters will feel the pain.

Amman,07April2003
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The Star


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