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03 Apr 2003 13:12
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War takes
its toll on world economy
By Gerrard Raven
LONDON (Reuters) - Today has brought fresh signs that the
war in Iraq is shaking the fragile world economy even as the
prospects of an early end to the conflict rise as U.S. troops
approach Baghdad.
Reuters polls indicated that the services sector on which
modern economies depend for much of their dynamism slowed sharply
last month in both the euro zone and Britain, while Germany
announced unemployment jumped to a five-year high last month.
A poll out later on Thursday in the United States is
expected to show that its services sector has also become less
buoyant.
European stocks rose again and world oil prices fell as
traders monitored the situation in Iraq, where the United States
said its troops had advanced to within 10 km (six miles) of the
capital.
But with military experts predicting several more weeks of
fighting, the signs of the possible economic fall-out were worrying
their economic counterparts.
The Reuters eurozone services purchasing managers' index
for March fell further below the 50 level that divides growth from
shrinkage to 47.7 from 48.9 in February.
Data for the survey was collected from over 2,000
companies between March 14 and 27, with 65 percent of replies from
the biggest economies -- France, Germany and Italy -- received
before war began on March 20.
"Frankly, the data is terrible," said Alan Wilde, director
of fixed income at Abbey National Asset Managers in Glasgow,
Scotland.
"Maybe the mitigating factor is that people have written
it off given events in Iraq...But on the face of it, the data is not
helpful to a climate of economic recovery in the euro zone."
The survey followed one issued on Tuesday which showed
manufacturing industry was also shrinking in the euro zone, after
the index stuck its head above the magic 50 level in February.
BRITAIN TOO
A parallel services sector survey in Britain showed that
it shrank last month for the first time since December 2001 with the
index of business activity covering everything from restaurants to
software consulting at 49.0 in March.
The Chartered Institute of Purchasing and Supply, whose
February survey had given a reading of 50.2, blamed the fall on
continuing uncertainty about the short to medium term outlook.
"Uncertainty had been further heightened by the build up
to, and subsequent start of war in Iraq," it commented.
While the news was grave across Europe, it was
particularly so in Germany.
The German purchasing managers' index hit a six-year low
at 43.3, down from 43.6 in February, and the jobless figures showed
4.414 million Germans were out of work, the highest figure since
February 1998.
The figure, adjusted for seasonal factors, was up 52,000
from February in the euro zone's biggest economy which has been
struggling to achieve growth, economists say, because of outdated
labour rules and generous social benefits. Joblessness now stands at
10.6 percent.
"In view of the stagnating economy and the Iraq war, no
real upturn in the labour market can be expected before 2004," said
Labour Office chief Florian Gerster.
ECB MEETING
German politicians have called for an easier monetary
policy from the European Central Bank to spur their economy and
those of their euro zone partners.
But they could hardly have been counting on the bank's
council to emerge from a meeting in Athens on Thursday bearing such
gifts.
With the progress of the Iraq war still uncertain, the ECB
kept its key interest rate at 2.50 percent when it announced the
outcome of its meeting at 1145 GMT.
The U.S. Federal Reserve is seen more likely to cut rates
soon, and its decision could be influenced by the release at 1500
GMT of the March non-manufacturing index from the Institute for
Supply Management.
Economists expect the index, the rough equivalent to the
euro zone services PMI, to slip to 52.3 from 53.9 in February.
Meanwhile in Asia, governments trying to steer their
economies through a global downturn exaggerated by the war in Iraq
have an additional scourge to contend with -- disease.
But a meeting of Southeast Asian trade ministers in Laos
on Thursday said they saw the economic impact of the flu-like Severe
Acute Respiratory Syndrome as short-term.
The disease which originated in southern China and has now
killed 80 people, most of them in Asia, could however impact one key
sector of the continent's economy, they admitted.
"I think we only worry about tourism," Thai Commerce
Minister Adisai Bodharamik told Reuters, wearing a mask to protect
himself against infection as he passed through Bangkok international
airport on the way to the get-together.
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