What Does the Future Hold for Global Investors? Doubts Still Remain over the Economic Fallout from the US Led Invasion of Iraq. While Oil Prices Have Fallen, the Prospect for Global Growth Is Uncertain. (View from the City)

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In the aftermath of US-led conquest of largely defenceless Iraq, resulting in losses of many innocent civilian lives and severe damages to physical infrastructures - excluding, however, the most valuable assets (the multi-billions dollars oilfields) - western investors are now hoping to see more settled economic climate over coming months.

Besides concerns about Saddam Hussein's arsenal of weapons of mass destruction - so far unfounded - the real motives of US administration for attacking Iraq were to end months of financial markets' turmoil and rising crude prices.

However, markets are exceptionally fortunate that Baghdad, but not Pyongyang was the target of 'regime change' because sluggish world economy would have been in dire problems had Americans invaded Stalinist North Korea. The country possesses unspecified number of nuclear weapons, thus the capability of retaliating against foreign invaders. Whereas Saddam Hussein's regime was full of rhetoric, The Financial Times (London), commented: "Iraq was the story of America's unparalleled military might. North Korea is the testimony to its limits. The regime in Pyongyang is every bit as nasty as Mr. Hussein's was. Probably more so. It is also a lot more dangerous.

CHEAPER OIL

We should be thankful to the long-suffering Iraqi nation for dismantling 'risk-premium' to oil prices - in place since September 2002 - when President Bush first indicated his intentions of attacking Iraq, with or without United Nation's approval.

From pure financial perspective, a successful Iraqi adventure should in coming months present hefty dividends and improve market confidence. Crude oil is probably the most essential commodity in the world economy today, hence its price affects industry costs everywhere. In richer countries, which mostly import energy, trends in oil markets have a big impact on consumer spending power.

The Persian Gulf's oil supplies (the source of two-thirds of globe's proven reserves) remained intact during the brief military hostilities. Nightmare scenarios had oil prices sky-rocketing to $80-$100/a barrel in the event of Iraqi chemical or biological attacks upon Saudi Arabian or Kuwaiti oilfields. A prolonged costly war might have pushed global economy into recession - on the scale of the 1930s Great Depression.

Fortunately, crude prices have plunged 40% from a peak of almost $40 in mid-March to around $24 now. Cheaper energy prices means lower business costs and higher profit margins. That, in turn, means more dividends for shareholders, better prospects for business investment, growth and shares, Economists calculate that $10 drop in oil prices is equivalent to a $55 tax cut for US businesses and consumers. The main ingredients for a growing economy are rising stock markets - underpinned by consumer confidence and falling energy prices. Ben Bernanke, the Governor of the Federal Reserve (US Central Bank), said: "Most factors point to a moderate pick up in business investment and economic growth in the second half of 2003 and in 2004."

How STRONG A POST-WAR RECOVERY?

The underlining strength of global economy and corporate profitability were questionable long before US-onslaught on Iraq. New research by international organisations have indicated continuous 'lacklustre' economic growth in most regions. The International Monetary Fund (IMF), noted: "It is unlikely that sputtering global growth will suddenly lunge ahead into an immediate strong recovery." It anticipates world output growth of 3.2% this year and 4.1% in 2004. The Fund is optimistic about recovery in Sub-Sahara Africa, where growth is forecast to hit 6.4% next year (up from 4.2% in 2003), underpinned by improved economic governance in most countries and higher non-fuel commodity prices.

The Organisation for Economic Co-operation and Development (OECD) - the influential club of 30 richest nations - is less upbeat about growth outlook than the IMF. …