BERLIN, March 20 - The head of Germany's influential Ifo economic institute, Hans-Werner Sinn, on Thursday reiterated his view that a short war would not have a drastic impact on economic growth in Europe. "Assuming the military action will be short and will not lead to a further increase in oil prices or to political destabilisation in the Middle East, the Ifo institute expects economic growth for 2003 in the euro zone to be 1.1 percent and 0.9 percent in Germany," Sinn said in a statement issued at a news conference in Berlin. According to Ifo, risks are considerable should oil prices increase and if stock prices continue to fall.
"Overall if this pessimistic scenario becomes reality, virtually zero growth for Germany would be the result. The Ifo institute does not regard this pessimistic scenario as likely since most of the effects of the war are already built into market expectations," he said. "We are more optimistic about growth in Germany than other institutes and forecasters," Sinn said, citing the fact Ifo's closely watched business climate indicator had risen for two months in a row due to an improvement in firms' views of their current business conditions. "If there's now a third month of improvement in the current situation then we would say this was an indicator for a potential turnaround," Sinn added, referring to the March Ifo index due to be released on March 27.
A quick war should have no impact on the euro, he said, describing recent losses against the dollar as speculation that had nothing to do with fundamentals. "The fundamentals all go the other way," he said, citing the U.S. current account deficit and growing demand for euro currency outside the euro area. //