IMF: War's end won't mean economic surge

WASHINGTON, April 10 (UPI) -- The worst might be over for the global economy, but don't expect a surge in world growth just because the war with Iraq appears to be nearing an end, the head of the International Monetary Fund cautioned Thursday.

While tensions in the Middle East have been a significant factor weighing down the world's growth over the past few months, it is easier now to see the end of the war, and for countries to discuss how to reconstruct Iraq after the fall of Saddam Hussein's regime.

"The short war is good news," said IMF Managing Director Horst Koehler at a press briefing ahead of the institution's spring meeting this weekend.

Downside risks from the war against Iraq so far "have remained contained," Koehler said, adding that oil prices have not surged as a result of the conflict.

A major concern, especially for industrialized nations, had been that the war might disrupt oil supplies and raise petroleum prices considerably, eventually pushing up inflation rates. But oil prices have actually fallen in recent weeks, as investors expect a U.S. victory in Iraq will eventually lead to a steady supply of petroleum from the country, which has the world's second-largest oil reserves.

But while the IMF anticipates a slight pickup in world growth prospects in the latter half of this year, Koehler said investors shouldn't expect a rapid rise in global output.

"The overriding priority of our spring meeting must be to contribute to restoring confidence to consumers and investors worldwide," Koehler said, noting a number of negative factors that were hampering growth even before the war.

He also emphasized the resilience of the world economy, which had remained relatively strong despite the bursting of the asset price bubble in 2000 and the terrorist attacks the following year.

"Such a resilience is a demonstration that we should not panic" even when circumstances could strike gloom and pessimism in the hearts of many investors, he added.

But even as the Iraq war apparently winds down, not only does the war against terrorism continue, but so do tensions between the United States and continental Europe, as well as many Arab nations, in light of differences on when and whether war should have occurred in the first place. And differences persist about how to reconstruct post-war Iraq.

Such political friction could spill over into trade relations, which would ultimately hurt global growth. But Koehler said that countries should acknowledge the economic importance of trade and continue to work together to encourage commerce across the globe.

On Wednesday, the IMF forecast 2003 U.S. gross domestic product growth to reach 2.2 percent, rising to 3.6 percent the following year. Meanwhile, growth in the eurozone is pegged to be even more sluggish, only 1.1 percent this year and 2.3 percent in 2004.

Japan's GDP growth is expected to be 0.8 percent this year, rising to only 1 percent the following year. Growth in China, on the other hand, is expected to stay robust, with GDP expanding by 7.5 percent this year and next.

Meanwhile, growth in developing Asian countries is estimated at 6.3 percent in 2003 and 6.5 percent in 2004. The IMF expects Asia, excluding Japan, to have the most robust growth over the next year. But since the United States continues to dominate the world economy, and most Asian countries depend heavily on robust external demand for growth, continued weakness in the U.S. economy could hurt Asia, too.