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Some people in the United States believe that as soon as the war on Iraq started, the US economy would get a boost in its recovery. However, whether this prediction is correct remains a question.
As the long-debated US war on Iraq broke out Wednesday night with missiles falling on Baghdad, the capital of Iraq, in a "surgical strike," many analysts were wondering whether the war could give an immediate push to the struggling US economy.
The war began at a time when the US economy had been recovering, albeit with great difficulties, for more than a year. Troubled with corporate scandals, which resulted in the decline of consumer confidence and the plunge of the stock market, the recovery from the first US recession in the 21st century has been slow and unstable.
In the fourth quarter of 2002, the US economy increased at an annual rate of 1.4 percent, much slower than the 4 percent in the previous quarter.
Consumer spending, which accounts for two-thirds of the gross domestic product (GDP) in the United States and also the main force in the economic growth, rose at a rate of 1.5 percent in the fourth quarter of last year, dropping sharply from the robust 4.2 percent in the third quarter.
Uncertainties arising from a possible war against Iraq and soaring oil prices were the main reason behind the slow increase of the US economy.
But now, with the war raging on, the uncertainties are unlikely to be eliminated within a short period of time and the US economy might not benefit from the war immediately.
First, ousting Iraqi President Saddam Hussein could cost the United States at least US$40 billion or much more if the war drags on. And the aftermath could be even more expensive, with the prices for rebuilding and securing Iraq potentially exceeding US$100 billion, according to some analysts. It will be a great burden for the US government which is currently saddled with huge budget deficit.
US President George W. Bush said in his budget proposal for the2004 fiscal year that the deficit in 2003 will reach as high as US$304 billion and the figure will jump to US$307 billion in 2004. If the cost of war is included, the deficit will increase to about US$400 billion. The soaring federal deficit will surely slow the pace of economic growth in the long run.
Second, the world oil prices might not sink as sharply as many people have forecast. Some people said the world oil prices would plunge soon after the war and thus push the US economy forward. However, the situation in the world oil market as well as in the United States is quite different from that during the last Gulf War when oil prices declined by a big margin soon after the war had begun.
The commercial stocks of crude oil in the United States dropped to a 27-year low in early February and remained at the level since then. The soaring energy prices in the past several months have not only pushed the inflation up quickly but also resulted in a sharp reduction in consumer spending on other consumer goods.
Some people also pointed out that a possible disruption caused by the war on Iraq may not be made up soon enough by oil-producing countries as most Organization of Petroleum Exporting Countries (OPEC) countries do not have much additional production capacity. So the world oil prices may decline after the war began but not as much as many people had expected.
Third, the United States will not benefit immediately from the after-war Iraq even if it could disarm the current Iraqi government in a few weeks. Facing a war-torn Iraq, the United States first has to inject a great sum of money into the rebuilding work in Iraq before pumping oil to its market.
Some analysts say the United States has to station at least 100,000 troops in Iraq to secure peace and spend billions of dollars to rebuild the country. Having decided to keep the short-term interest rate unchanged earlier this week, the US Federal Reserve (Fed) said in a statement that "the hesitancy of the US economic expansion appears to owe importantly to oil price premiums and other aspects of geopolitical uncertainties." The US Fed stressed that policy-makers could not assess the risks of future US economy given all the uncertainties over the Iraq situation.
(Xinhua News Agency March 22, 2003)
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