Financial markets greeted increasing prospects of an early end to the war in Iraq yesterday, but new developments suggest the world still faces tough days and months ahead on the economic front.
The OECD signalled continued weak growth ahead, Europe's biggest insurer said it saw no signs of a global pick-up, and a major US bank cut its forecast for global growth to a level it called recessionary.
In addition, there were signs in Asia that pestilence, as well as war, was taking an economic toll.
A US statement that 2,500 Iraqi Republican Guards had surrendered as US troops tightened their grip around Baghdad increased prospects of an early end to the conflict there, and focused attention on the economic and political aftermath.
However, the chances of a return to world peace coinciding with a return to global prosperity looked far more uncertain.
The Organisation for Economic Cooperation and Development said its early warning indicator for the OECD area fell by 0.5 points in February to 120.4 from a revised 120.9 in January. It was the first fall in the index for four months.
"This confirms the general trend since the middle of 2002, that weak growth is still the basic message," said OECD economist Ronny Nilsson.
The so-called composite leading indicator (CLI), a forward-looking index, fell by 1.5 points for the United States in February to 129.7 from a revised 131.2 in January. It was down by 1.1 points for France and by a full point for Britain. However, in the 12-nation euro zone as a whole, the index rose slightly to 119.0 from a revised 118.8.
The verdict of the highly-respected Paris-based think-tank, whose members include the world's richest countries, was backed up by US bank Morgan Stanley.
It said yesterday it was cutting its forecast for the global economy to recession, citing war, geopolitical uncertainties and most recently, the impact of the Sars virus on Asian growth.
"The major economies of the developed world appear to have contracted in February and March... additionally Sars-related impacts have hit once resilient Asia extremely hard," said Morgan Stanley chief economist Stephen Roach in a research note.
"We are cutting our baseline estimate of 2003 world GDP growth from 2.5 per cent to 2.4 per cent. We and others have long viewed 2.5 per cent world GDP growth as the official recession threshold for the global economy."
The OECD was also backed up by ING Groep NV which as Europe's biggest insurer by market value has its finger on the global economic pulse.
"All indicators point to continued (world) economic weakness," the Dutch financial services group said in a presentation to investors.
"A future recovery (is) likely to be slow amid uncertainty about a US upturn due to the need to finance the war in Iraq."
Discussions of how the war's aftermath will be financed and what impact it will have on economies around the globe will be the focus of two meetings in the next few days.
On Thursday, US Treasury Secretary John Snow said finance ministers from the G7 group of major industrialised countries would discuss how they could cooperate in rebuilding Iraq's post-war economy when they meet in Washington next week.
"Once we get closure on this war, I hope the international community comes together and recognises the need to put in place both the funding for the reconstruction and the humanitarian aid," Snow told reporters in Orlando, Florida.
He also said his relationship with the finance ministers of countries which found themselves on the other side of the fence from Washington over the war "have remained most cordial", citing French and German ministers Francis Mer and Hans Eichel.
The economic outlook for Asia, as Morgan Stanley said, is complicated by the deadly new flu-like virus sweeping the continent.
Concern about the impact of Severe Acute Respiratory Syndrome was fanned yesterday when a report from the Philippines showed export growth was slowing sharply and Moody's Investment Service warned it could cause Hong Kong's budget deficit to widen sharply.
In addition, Malaysia said it had put off plans to announce an economic stimulus package while it assesses the potential impact of the Iraq war and of Sars, which has already killed more than 80 people, mostly in Asia.
"It (Sars) is actually turning out to be a more serious problem than people thought," Australian Foreign Minister Alexander Downer told reporters at the United Nations in New York.