Economist warning: belt up for volatility

By PAM GRAHAM

Economists cannot forecast wars. What they could say yesterday, assuming US President George Bush's ultimatum to Saddam Hussein leads to war, was:

When the last Middle East conflict occurred in 1990-91, the New Zealand economy was struggling out of recession. It is in better shape now.

Economists' forecasts are assuming a best-case, short-war scenario, as are markets.

ANZ chief economist David Drage said that may be a heroic assumption - the best you could say was considerable volatility was likely in the days ahead.

Any drop in international travel had to be weighed against recognition of the NZ market as a safe haven, dragging in Asians and Australians.

During the last Middle East conflict, the oil price spiked, but did not stay high, the NZ share market and consumer confidence weakened - and did not fully recover afterwards.

This time, the goal is different: removal of a leader.

The best-case scenario was a quick war, with minimal damage to the oil infrastructure and no retaliatory terrorist attacks. A worst-case war would crimp global recovery.

Duetsche Bank economist Ulf Schoefisch said it was now clear when a conflict would start, but not how long it would last.

The world's growth engine, the US economy, probably had annualised growth of 2 per cent in the first quarter - half of what it should be doing.

"Europe virtually has ground to a halt, Japan is at a standstill," he said.

Places like Australia and New Zealand were slowing down.

The US had " tried hard with interest-rate stimulus and fiscal stimulus, but had "just kept things growing, not accelerating".

Herald Feature: Iraq