/www.fxserver.com/ By Gerrard Raven
LONDON - The shaky world economy suffered further damage in the build-up to war in Iraq and in the first few days of the conflict, surveys suggested on Tuesday.
A major poll of economists showed they had trimmed their forecasts for growth in all the world's seven major economies, with the exception of Japan.
And a key survey of Eurozone manufacturing industry showed an incipient recovery detected earlier in the year was snuffed out in March. In any case, the report suggested, the improvement in January and February may have resulted from firms building up stocks as war loomed.
A report from the Bank of Japan on companies' sentiment, a French poll of consumer confidence and British retail sales data added to the depressing picture.
Financial markets, already worried by signs the war may be longer and bloodier than anticipated, expect more bad news at 1500 GMT when the Institute for Supply Management (ISM) publishes its monthly index of U.S. manufacturing activity.
The survey of 180 economists showed they now expect U.S. gross domestic product to rise by 2.4 percent this year compared with 2.7 percent forecast in January.
Growth in the euro zone giants Germany and France is now seen at 0.7 and 1.2 percent respectively and the British outlook has been pared back to 2.0 percent from 2.5. By contrast Japan is seen growing 0.8 percent, double the January figure.
"I think Iraq...the geopolitical uncertainty...is certainly a factor weighing on (U.S.) business spending decisions, both for new plants and equipment and on new hiring," said Peter Hooper, chief U.S. economist at Deutsche Bank in New York.
The findings of the survey were announced hours after a key pointer to the state of euro zone manufacturing industry showed a sharp downturn in March.
The Eurozone Purchasing Managers Index fell to 48.4 from the 50.1, just above the 50 line which divides growth from contraction, to which it had struggled in February.
"There has been a general holding-back or postponing of significant business decisions, exacerbated by the run-up to war," said Luke Thompson, senior economist at NTC Research which conducted the poll. "It has made the world more uncertain -- people are postponing big new business decisions."
Polling of 2,500 firms which contribute to the survey took place between March 14 and 25, although most replies came back before U.S.-led forces began their invasion of Iraq on March 20. NTC did not say whether the mood changed once war began.
TEMPORARY PHENOMENON?
"Very weak indeed," said Ken Wattret at BNP Paribas. "The key question would be, is this just a temporary phenomenon and could a quick resolution to the war lead to a rebound?"
"The problem with that scenario is that a quick resolution to the war now looks increasingly unlikely."
In Germany, the euro zone's largest economy, the index fell to 47.8 from 49.9, reflecting a sharp decline in new orders.
NTC detected signs that the February figure had been boosted by firms wary of war increasing their stock levels.
"There was a suggestion from some panel firms that the more positive nature of business in February had reflected a degree of one-off growth relating to fears of disruption in the event of war," it said in its report.
Parallel surveys from outside the euro zone showed that the manufacturing downturn there was not an isolated phenomenon. In Britain, where manufacturing has long been the economy's Achilles' heel, the Chartered Institute of Purchasing and Supply's index fell to 46.1 from 48.1 in February. However, the Japanese /Nomura/JMMA Purchasing Managers survey provided some relief, rising to a seasonally adjusted 48.9 from 48.1 in February, although it was below the neutral 50 mark for the seventh month in a row.
AFRAID TO CONSUME
A survey by France's national statistics office, meanwhile, showed that even before a shot was fired in anger in Iraq, consumer confidence in the country which had striven to avoid a conflict had fallen to its lowest since December 1996.
The office, INSEE, said its confidence index fell to minus 32 in March from minus 26 in February and that households' pessimism about unemployment had reached an all-time high. Polling ended on March 19, the eve of war.
"The geopolitical climate, plus fears over unemployment, means that today the French are afraid, and are therefore afraid to consume," said Marc Touati, chief economist at Natexis Banques Populaires.
Later, French Economy Minister Francis Mer acknowledged the economy was sluggish. "Our country's economy is currently running slow at a rhythm of one percent annually, which is not great but not a disaster," he told business leaders.
Across the Channel, the Confederation of British Industry said its index of retailers showed the biggest annual fall in sales since July 1992, falling to -13 percent last month from +2 in February according to polling completed on March 19.
And in Italy, a forward looking indicator for industrial production remained bleak as the war in Iraq put the brakes on recovery. The indicator, produced by economic institute REF for , remained at -1 for June after -1 for May.
Earlier, the Bank of Japan's quarterly "tankan" survey of some 8,000 companies confirmed the economy was limping along.
The closely-watched large manufacturers' diffusion index eased to -10 from -9 in the previous survey, the first decline in five quarters.
A further indication of the global economy's health was awaited in the U.S. figures on the state of manufacturing industry there from the ISM later in the day.
A poll of economists showed the market expected a fall in its index to 48.6 from 50.5 in February, which would mean manufacturing was going backwards in the United States, Japan and Europe, the three legs of the global economic stool.
However, policymakers at the Federal Reserve, the U.S. central bank, said on Monday they would want to study data over the next few weeks before pronouncing on the issue.
"(With) the data that we have, it's really hard to tell what is due to war-related issues and what is due to other fundamental economic issues," Fed governor Susan Bies told reporters in New Orleans.
"We will have to get some more data behind us."