Should war in Iraq finally begin, a recovery of the world economy is likely to hinge on how long it lasts.
The start of a long-awaited US-led attack, economists reckon, will probably give financial markets a lift by removing the months of uncertainty associated with the build-up of tension in the Gulf.
But a sustained boost to world economic activity is only likely if a long and messy military campaign can be avoided and the market relief proves to be more than a temporary filip.
The extent of economic impact will also depend on a host of unknowable variables -- particularly whether there is oil field damage, an urban battle in Baghdad or use of weapons of mass destruction.
One thing is certain: the world economy would be starting this war from a weaker position than most expected even just a few months ago.
International Monetary Fund head Horst Koehler has forecast a global expansion of just above three per cent this year, down from 3.7 per cent growth foreseen last September. But a protracted war could shave as much as two percentage points off that forecast.
Former US Federal Reserve Governor Laurence Meyer believes the start of the war would lift uncertainties hurting consumer and business spending. But without a clear resolution to the crisis, those unanswered questions will continue to dog the economy.
Boost to confidence
Meyer, now at the Center for Strategic and International Studies, sees the best case as a swift victory, which he thinks would boost stocks and consumer confidence and add a half percentage point to US growth this year.
He ascribed a 40 to 60 per cent likelihood to a war of less than six weeks. He gives a 30 to 40 per cent probability of the war lasting as long as three months, which he says would knock 1.75 percentage points off US output this year.
The worst-case scenario, with a five to 10 per cent likelihood, is a war of up to six months with urban battles, oil facilities burning, regional disruption and terror attacks in the United States and Britain. Meyer said that would knock 4.5 percentage points off US economic growth.
"The economy grows more slowly in the no-war case and in the intermediate case and the US and global economies are thrown into recessions in the worst case-scenario," he said.
Conservative calculations of the cost of the war for the United States, which assume a swift campaign along the lines of the 1991 Gulf War, come in at around $100 billion, equivalent to one per cent of US economic output.
Most economists are betting on a short war with a speedy US victory. That, they said, will lift the uncertainty, push the price of oil back to about $25 a barrel from prewar levels of close to $40 and set stock markets rallying.
A brief war could spur US growth to a pace as fast as five percent by year-end with the global economy clocking a three percent expansion rate, many private economists expect.
The view in the European Union is that the impact of any Iraq conflict on the price of oil will be key to the 15-nation group's economic outlook.
EU Economic Affairs Commissioner Pedro Solbes said on Friday that under the most likely scenario of a short-term rise in the price of oil, growth would be hit by between 0.1 and 0.3 percentage points.
That would be a considerable impact given that he also said the signs were that the euro zone would not reach the 1.8 per cent gross domestic product growth which the Commission predicted for it in November.
Another scenario, Solbes said, was a longer term rise in oil prices which could have a 0.5 percentage point impact on EU growth and prices.
Japanese risks
In Japan, prospects are for the economy to continue plodding forward, if there is a short Iraq war of under six weeks, as seemed most likely, with little damage to oil supplies, according to brokers Nikko Salomon Smith Barney.
If the war lasts for six to 12 weeks, however, Japan's gross domestic product could fall 1.5 per cent. And if it lasts three to six months, Japan's GDP could contract by a sharp 4.6 per cent, it said in a research note this week.
"Under such a dire economic situation, the government might change economic policies, such as a more aggressive fiscal policy and drastic measures for the banking sector, including injection of public funds," the report said.
Back in the United States, the expectation of Michael Mussa of the International Institute of Economics and former IMF chief economist is for a reasonably rapid military victory.
"A fairly rapid fallback in oil prices will give a boost to the global economy in the second half of this year," he said.
But the post-war economic recovery may not be as swift as some expect, Mussa said. That's because the war build-up and the resulting escalation of oil prices has gone on much longer than many expected. Those high oil prices have already shaved a half-percentage point off global growth prospects, he said.
But even if the US economy gets a short-term benefit from a decisive resolution to the Iraq crisis, and even if the American economy gets a further boost from a $726 billion stimulus package the Bush administration is trying to push through Congress, not all economists see a smooth road ahead.
Machinery of war
World War II and the Korean and the Vietnam wars gave huge fiscal jolts to the American economy, cutting down unemployment as US factories cranked out the machinery of war.
But the Gulf Wars carry much smaller costs, most of which will be accounted for by the usage of existing munitions -- a scenario that offers little economic tonic, Nobel Prize winning economist Joseph Stiglitz wrote recently in Britain's Guardian newspaper.
David Wyss, chief economist at credit rating agency Standard & Poor's in New York, is among those who think the war will provide a short-term boost to global economic prospects.
But whether the world can maintain solid growth over the medium-term is another matter.
According to Wyss, even if the potential war with Iraq fades into history quickly, the US economy will still face overcapacity, Japan will remain mired in stagnation and deflation and Europe's economy will continue to underperform thanks to budget restraints, deep-seated German problems and "incompetent" European Central Bank monetary policy.
"Iraq has not been the only problem," Wyss said. "Even once that dark cloud lifts, it's still pretty foggy out there."