Combination punch hits global economy

MSN Money By Tom Costello 12:55 PM EST April 2, 2003

Already weak, the world's economy now is grappling with the war in Iraq and the SARS outbreak. "The global economy is relatively infirmed right now, relatively weak, and one more shock is not what the economy needs right now," says Steve East, the chief economist at Friedman Billings Ramsey. East has told his clients that they need to watch the SARS, or severe acute respiratory syndrome, outbreak closely if they're investing globally. If consumers in Asia stay away from crowded places such as shops, the implications could be profound. Tipping toward recession? "If that causes these economies in the Pac Rim to tip into recession at a time when the rest of the global economies are weak, we could end up with a rolling global recession," East says. There are plenty of worrisome signs. In Hong Kong, authorities are decontaminating schools and quarantining entire apartment blocks. In Canada, authorities say six people have died from SARS. "People are very frightened here in Hong Kong," says Mark Mobius, who runs the Templeton Emerging Markets Fund (EMF). "I would say it's almost a panic situation." The fear of SARS was put on display Tuesday when an American Airlines plane from Tokyo was briefly detained on fears several passengers had SARS. It turned out they didn't. Surrounded by uncertainty All of this comes at a time of tremendous global uncertainty. With the war in Iraq expected to last longer than originally thought, economists are taking stock of the world's trouble spots. European manufacturing shrank in March, with the German economy teetering near recession. Japanese business confidence also deteriorated, with yet another recession a distinct possibility there. War and civil strife in Nigeria and Venezuela have put even more stress on the world oil market, pushing oil prices to almost $30 a barrel. Even more troubling, the U.S. consumer, the backbone of the nation's economy, is starting to put away the checkbook. Still, economists say we've been through worse. For instance, the 1970s are considered a more difficult time for the global economy. But in this case, the war in Iraq remains a major variable. For some, however, this turmoil represents a buying opportunity. Says Templeton's Mobius, "Right now what we're doing is investing and keeping invested, not only here in Asia but in other parts of the world."

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