Global Economic Prospects: Through the Fog of Uncertainty

Michael Mussa

No PB03-02, Policy Briefs from Peterson Institute for International Economics

Abstract: The global economic recovery lost considerable momentum in late 2002 and appears likely to remain sluggish through the fi rst half of 2003 before accelerating again late this year and in 2004. The escalation of world oil prices and uncertainties surrounding the economic effects of the US-led invasion of Iraq are key factors contributing to the current slowdown and clouding near-term economic prospects. While the risks of ongoing military operations--especially the level of casualties and longer-term political consequences--are still diffi cult to assess, the most likely scenario is a rapid removal of the present Iraqi regime without enduring damage to Iraq's economic infrastructure. This should be followed by bounce-back in consumer and business confi dence and in fi nancial market sentiment and by a de-escalation of world oil prices--all contributing to a strengthening of growth in the second half of this year and beyond.

Date: 2003-04
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