War could delay economic recovery

War could delay economic recovery

A long war could depress recovery

A prolonged war in Iraq could dampen the already fragile global economic recovery, the International Monetary Fund (IMF) has said.

The IMF said in its Global Financial Stability Report, which looks at economic risk, that a sharp fall of the US dollar could have far-reaching consequences.

A steep fall of the greenback could destabilise already struggling financial markets, the IMF warned on Thursday.

On a positive note, the IMF said low interest rates across the globe helped lift confidence while a collapse of the global financial system was not very likely.

"The reversal of the fourth-quarter equity market rally... highlights the continued fragility of investor sentiment and the urgent need for policies to foster market confidence, and for a resolution of geopolitical tensions," the report said.

Uncertainty

War jitters in the run-up to the war in Iraq led to steep falls on world stock markets, soaring oil prices soaring and a decline in the value of the dollar against other major currencies.

The IMF also cautioned that the currency uncertainty of financial markets could last even if the war is swift.

"Prolonged uncertainty could keep risk aversion at a high level, depress financial markets and reinforce the headwinds against global economic recovery."

The IMF said that in the current climate, it was crucial for governments and policymakers to maintain confidence in the economy.

Current low interest rates, which means businesses and consumers can borrow money cheaply, help boost that confidence, the report said.