World Economy Is Full of Uncertainties: Dialogue

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Last updated at: (Beijing Time) Wednesday, March 26, 2003

World Economy Is Full of Uncertainties: Dialogue

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The United States Thursday launched a massive assault on Iraq after US President Bush's ultimatum for Saddam and his sons to leave the country expired.

People seem to have no worries about the outcome of the war, but it merits people's close concern about what impact it will bring on the economies of the United States, Europe and the world as a whole. The International Weekly of this issue has invited PD correspondents and several experts to express their views in writing about related topics for reader's reference.

Wu Qi, an ancient Chinese strategist, once said: There are five causes of war, namely, struggle for fame, and for gain, accumulation of grievances, civil strife and famine. But war is mostly caused by scramble for fame and gain. A German strategist also pointed out in his book "On War": war invariably covers up the political aim, the goal of war action is the counter-performance of the political aim. In a word, war is only the continuation of politics. Politic represents the mind while war is the tool. And politic is nothing more than the synthesis of economy.

International oil price pattern is fermenting tremendous change

Although waves of popular anti-war voices have been surging one after another in various parts of the world, France, Germany and some other countries also disfavor the start of war, the US government, however, insists on overthrowing the Saddam Hussein regime. To get to the bottom of the matter, besides political reasons such as the anti-terrorism war, the oil problem is, without doubt, one of the important factors. Controlling the oil resources of the Middle East has all along been part of American strategic considerations. Over the past 10 years and more, the proportion of imported oil in US oil amount of consumption has increased from one-third to one-half. According to the estimation of the US government, by the year 2020, along with increase in oil consumption amount and decrease in domestic output, this proportion will increase to two-thirds. By then, oil producers in the Gulf region will supply two-thirds of the world's exported oil. Iraq's oil deposits come to 115.0 billion barrels, ranking it the world second, if the unproven deposits are added, Iraq's oil deposits may reach 220-225 billion barrels. Control of the Gulf region has become more important than any time before.

The objective the United States currently set is to topple Saddam and reconstruct Iraq. According to the plan formulated by the US State Department, the United States will control Iraq's oil resources, get income through exports and use most of these incomes for Iraq's economic construction, such as the recovery of petroleum, road and bridge, education and public health and telecommunication industry. To put this plan into practice, the United States will formulate a new constitution and elect new leaders for Iraq. It is estimated that reconstruction of Iraq needs about 10 years' time at a cost of tens of billions of US dollars. It is generally held that if the United States can effectively control and fully tap Iraq's oil resources, it will have a big say in the future world's oil supply and in the setting of oil prices and tremendous change will correspondingly take place in the international oil pattern.

World economy will possibly be bogged down in deep depression

However, despite the well-calculated US wishful thinking, the entire world economy is now in depression, the US economy is not firmly based, once war against Iraq breaks out, it is hard to foretell its process and result. Judged from the near-term situation, if the war leads to a rapid rise in oil price, the world economy will face the danger of being brought into deep recession.

Over the past century and more, each major war often became a turning point in the change of the world economic pattern. In the latter half of the 80s of the last century, the economies of the United States, Western Europe and Japan witnessed synchronous growth, making them the "three big engines" for the growth of the world economy. Statistics show that during the 1985-90 period, the average annual growth rates of the economies of the United States, Europe and Japan stood at 3.4 percent, 3.0 percent and 4.8 percent respectively. During this period, the economies of the East Asian region grew at an average 8.1 percent annually, the Latin American economy also underwent a moderate growth, at an average annual rate of 2.9 percent. Owing to the scattering of the sources of growth, the distribution of the world economic strength was relatively balanced.

After the 1991 Gulf War, the world economic pattern gradually saw major changes. In the 90s of the last century, the growth of West European economy was slow, the Japanese economy was stagnant, the newly emerging market economies of Latin America, East Asia and Russia were repeatedly and heavily mauled by financial crises, many developing countries in the African, South Asian and Caribbean regions were gradually marginalized, the United States gradually became the "sole engine" for world economic growth. It is estimated that in the seven years from 1996 to 2002, the United States represented 64 percent of the aggregate of the world economic growth, this proportion was over two times the proportion held by the United States in the world economy.

Over the past two years, the US economy witnessed a sharp drop in growth rate, the world economy was in a depressed state and is still in a difficult recovery stage. Judged from the present situation, there is still no sign of big recovery for the economies of Western Europe and Japan. An optimistic estimate shows that the economies of the Euro dollar zone can only increase 1.4 percent and that of Japan only 0.4 percent this year. Except China and several East European countries, most of the newly emerging market economies are unable to shake off the vortex of the world economic doldrums. Having sustained the blow of the Argentine financial crisis last year, the Latin American region can hardly regain its strength for the time being. Attacked by terrorism and affected by economic doldrums, some Southeast Asian countries saw a radical reduction in their attraction to foreign capital. Although China's economy can maintain a fairly high growth, it, however, can hardly give a big boost to the entire world economy. It is thus clear, whether the world economy can have a recovery or not has a great connection with the US economy.

Statistics show that the situation regarding US economic growth last year was not bad, reaching 2.7 percent. The US government earlier predicted that this year, the US economy should be able to stay at last year's level. But according to the analysis of US Energy Department, the elevation of every 10 US dollars in oil price per barrel will cause US economic growth rate to fall by about 0.5 percentage point. The oil price had swollen to US$35 per barrel at the end of this January, this calculation may have been made with a discount.

Four prospects for US economy

Judged from the current situation, the prospect of the US economy will primarily depend on the solution of the Iraqi crisis. Viewed from the trend of change in oil price alone, the general estimates are only the following four results:

1. Maintaining the status quo, delaying in making decision. Oil price will not be lower than 30 US dollars per barrel within the year, the US economy will increase at most 2.2 percent;

2. Iraq takes the initiative to disarm itself, and the United States wins without fighting. The oil price will fall back to 25 US dollars per barrel by the end of this year, the US economy will see 2.5 percent growth;

3. The United States and Britain join hands to wage war against Iraq and gain the victory by a single blow, warfare ends hastily, oil price will instantly fall back to below 20 US dollars per barrel, the US economy will grow by 2.9 percent; and

4. Iraq puts up stubborn resistance, the United States will hardly win for the time being. This may even trigger new crisis in other Mid-east countries, and thereby endangering world oil supply. Once such a situation emerges, oil price may rapidly shoot up to US$60-80 per barrel. By then, the US, West European and Japanese economies will unavoidably be bogged down in a recession, and the entire world economy will face the most serious crisis in the past decades.

By People's Daily Online

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