WASHINGTON, March 24 - The war against Iraq and the possibility of terror attacks on American soil pose the biggest threats to the U.S. economy, according to a survey of economists released on Monday. In a canvass of 223 business economists conducted before the United States and Britain launched military action against Iraq, 41 percent tagged war and terror attacks as the main risks the still-struggling U.S. economy faces, the National Association for Business Economics said.
"Most people are moderately positive about the economy, should the war be quick and swift," Diane Swonk, economist at Bank One Corp., said on the sidelines of the NABE conference where the survey was released. However, Swonk added that "nobody is certain what can of worms this war will open geopolitically" and how this might affect consumer, business and financial market psychology. Over the weekend, U.S. soldiers met resistance from Iraqis who on Monday were hailed by a defiant President Saddam Hussein in a televised address. Also on Monday, U.S. and British invasion forces heading towards Baghdad clashed with the elite Iraqi Republican Guards defending the approaches to the city as air strikes continued to hammer the capital.
"Obviously we are not long into this conflict, so it is too early to say if the worst is behind us," NABE President Tim O'Neill, chief economist at BMO Financial Group in Toronto, said on Friday. The threat posed by burgeoning federal spending and rapidly rising budget deficits, which in part reflect the war effort, came in a distant No. 2 on the list of risks with just 11 percent saying fiscal stress was the gravest economic problem. The survey was conducted March 3-10 as the United States was still gearing up for war. As the U.S.-led military campaign against Baghdad widened on Friday, stock markets surged as investors bet that damage to the economy would be limited. However, the weekend's setbacks in Iraq dealt a blow to European and U.S. stock markets. The Dow Jones industrial average closed down 3.6 percent while the technology-heavy Nasdaq composite finished 3.7 percent lower.
Oil prices also surged from four-month lows amid dented hopes the war would be swift and relatively uncontested. Last week, oil prices staged a days-long slide that helped ease fears the U.S. economy could tip back into recession. Eighty-one percent of the economists surveyed by NABE said the Federal Reserve had overnight interest rates about right at their current 1961 low of 1.25 percent. The other economists split between believing rates were too high or too low. Half of the respondents said the Fed would hold rates steady over the next six months, while 37 percent said rates would move higher and 7 percent saw them edging lower. NABE cautioned a majority of the survey had been conducted before the Labor Department reported on March 7 the economy had shed a shocking 308,000 nonfarm jobs in February. That report led many in the markets to expect further rate cuts. Nearly half of the economists polled said more regulations related to corporate governance were warranted to help rebuild confidence in U.S. financial markets, while 31 percent said current rules were adequate. Forty-two percent said fiscal policy was about right, while one-third thought it was too stimulative and about one-quarter said it was too restrictive.//