Long Iraq war would halve world growth – IMF

A prolonged war in Iraq would cut economic growth this year by more than half and plunge the world into recession, the International Monetary Fund will warn next month.

A leaked version of its twice-yearly economic forecasts show it is worried about "serious economic consequences" if a war went on for a long time and spread to other regions.

Its warning came as a leading UK economic think-tank urged the Bank of England to cut rates next month to tackle "economic weakness". The National Institute of Economic and Social Research (NIESR) said the Bank could not afford to "wait and see".

According to reports in the German press, the IMF will slash its forecasts for growth this year, even if there is no war. Its world economic outlook will trim its estimate to 3.3 per cent from September's 3.7 per cent. But this could fall as low as 1.3 per cent if there were a prolonged war. Economists deem 2.5 per cent a recession.

The IMF will warn a war could spark a global downward spiral if oil prices shot up, consumer and investor confidence sank and uncertainty in financial markets rose. "In a series of countries, the financial systems would come under pressure if share prices fall further and bad credit were to increase," Handelsblatt quoted the IMF as saying.

Meanwhile the NIESR said it would cut its estimate for UK growth unless there were signs of a rebound. The NIESR's latest estimates show the quarterly growth rate halved to a six-month low of 0.2 per cent between January and February. It currently forecasts annual growth for 2003 of 2.2 per cent.

There was fresh evidence of a slowdown in consumer spending. Shopper numbers fell 6.8 per cent in the first week of March compared with a year ago, the analysts FootFall said.

But there was a glimmer of hope in manufacturing. Output rose 0.3 per cent on the month thanks to a 24 per cent increase in computers, although the Office for National Statistics admitted this could be erratic.