The International Monetary Fund (IMF) estimates a prolonged military conflict in Iraq could cut global economic growth by up to two percentage points, Germany's Handelsblattreported.
The newspaper said it had obtained a copy of the IMF's World Economic Outlook, scheduled to be published in mid-April, in which the fund expressed concern about the "grave economic consequences" of a war in Iraq.
A long drawn-out military conflict could spark a downwards spiral worldwide as oil prices went higher, investor and consumer confidence slumped and uncertainty on the world's financial markets increased, the IMF warned.
Only a very short war could have positive effects on the economy and stock markets.
The IMF was set to cut its forecast for global growth this year to 3.3 per cent from its earlier forecast of 3.7 per cent published last September, Handelsblattsaid.
The fund expected the US economy to grow by 2.4 per cent in 2003, compared with the previous forecast of 2.6 per cent; euro zone growth would drop to 1.3 per cent rather than 2.3 per cent; and the German economy would expand by a meagre 0.7 per cent, instead of the 2 per cent predicted.
Germany would probably see its public deficit again breach EU limits, and the pressures on the financial systems in a whole range of countries would increase if share prices fell further and the number of bad loans increased.
As a possible solution, the IMF recommended the world's central banks should cut key interest rates still further.
AFP