The easing of uncertainty over Iraq may boost the US economy but will not solve all the problems for the fragile recovery, analysts warned last night.
Even as Wall Street reacted positively to the start of what appeared to be a swift war, experts warned the reaction may have been premature.
"In just one week, financial markets have gone from despair to hope," said Morgan Stanley economist Mr Stephen Roach. "Is it time to focus on postwar recovery? The answer to that question, in my view, is an unequivocal no".
Mr Roach said it is "entirely premature for investors to put war and business cycle risks behind them." Wall Street shares have soared some 10 per cent over the past week in anticipation of a decisive victory against Iraq, while oil prices have retreated from their 10-year highs.
But Mr Roach said: "It is truly an extraordinary leap of faith for investors to conclude that American military supremacy will lead to the perfect victory - an outcome, which can then be seamlessly translated into economic and financial market vigour".
Mr Steven Wieting, economist at Salomon Smith Barney, agreed that it was too early to bank on the outcome.
"There are plenty of individuals in markets now who want to take increased risks and make bets on the outcome but we are not suggesting that people do so," he said.
Global Insight, an economic research firm, said it was now giving a 70 per cent probability to a swift victory over Iraq. "Reduced uncertainty has been most noticeable in the world's surging stock markets, the jump in the US dollar and the plunge in oil prices," the group said in a statement.
AFP