IMF head sees no world recession from Iraq war

4.00pm

FRANKFURT - International Monetary Fund head Horst Koehler has said he does not believe the world economy will fall into recession as a result of a war in Iraq.

Koehler told the German newspaper Frankfurter Allgemeine Sonntagszeitung in an interview released ahead of publication that international financial markets have developed a higher degree of resistance in recent years to such shocks.

"A lot depends on how long a possible war will last and on which regions will be involved. With caution, I think that it will not come to a world recession," Koehler said.

He said many countries had learnt lessons from the financial crises of the late 1990s, with many now having flexible exchange rates and higher currency reserves.

Financial markets may also gain if any war in Iraq came to a swift conclusion.

"This (a short war) can lead to a positive surprise for overall growth but the danger of terrorism will remain," Koehler said.

He added that he would caution against over optimistic expectations of economic recovery in the case of a short war but expected global growth in 2003 to exceed that of last year.

"For the global economy, I expect a realistic growth rate of around three per cent, above that of 2002". Koehler said he expected the US economy to remain sluggish for some time.

"This year the growth engine of America will continue to sputter for some months".

- REUTERS

Herald feature: Iraq