Swonk: Growth prospects good in 2nd half

April 10, 2003 at 5:15 PM
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CHICAGO, April 10 (UPI) -- Bank One economist Diane Swonk predicted on Thursday an uptick in the economy for the second half of the year, but warned there is no guarantee "the uncertainty we have endured" in recent months would abate.

Swonk said economic weakness would continue in the near term as companies put off decisions; that the bear market would continue to rule; and that people would continue to worry about security and oil prices fluctuations.

Swonk said the war in Iraq is causing its own form of paralysis.

"Work came to a temporary standstill in some sectors while many consumers hunkered down and retreated to their living rooms rather than the movie theaters," Swonk wrote in her monthly newsletter, "One View of the Economy."

"Separately, the call-up of reservists by the tens of thousands distorted the employment situation, disrupted family and work life across the country and further contributed to feelings of anxiety," she added in her newsletter.

Swonk said the weakness from the recently finished first quarter may carry over into the second quarter although falling oil prices and the $75 billion in spending requested by President Bush could mitigate negative factors.

"Perhaps the greatest victory of the war, from an economic standpoint, has already been achieved," Swonk said. "Coalition forces have secured more than half of Iraq's oil, with damage by fires much less than expected."

Swonk said the economy should emerge from the current conflict "on a more solid footing" than it did during the first Gulf War in 1991. She predicted double-digit gains in equity markets "in the next year or so." However, she warned, it likely will not last as long as the previous bull run.

Swonk noted that shifts in domestic policy coupled with tax cuts ensure a return to structural federal budget deficits that eventually will have a negative impact on the economy.

"We are repeating mistakes of the past that will eventually prove costly to the economy's growth potential," Swonk warned. "Moreover, there is no guarantee that the uncertainty we have endured over the last several months will abate although it certainly seems likely."

She added: "A final thought: The days of isolationism passed a long time ago, and like it or not, the spread of globalization is accompanied by the spread of greater responsibilities both inside and outside the global community."

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