Let's talk about the war By Tony Featherstone, managing editor Friday, February 7, 2003
Many smaller companies and investors appear to be underestimating the effect that a possible war in Iraq would have on the Australian economy. BRW reporters interviewed more than 50 business leaders, across 13 industries, to gauge reaction and gain insights into how they plan to handle business conditions in the event of war. It is understandable that companies do not want to reveal their short-term strategies to competitors, but the level of indifference among smaller companies is surprising.
Big business has a much stronger view. Commonwealth Bank's David Murray warns that a prolonged war in Iraq could slow growth and possibly bring recession to Australia. Toll Holdings' Paul Little believes a prolonged war could cut between one-half and one percentage point off Australia's growth forecast. Macquarie Bank's Allan Moss warns that the "potential for a disruptive, sustained rise [in energy prices] to dampen confidence and spending is very real".
The response from smaller companies is not nearly as urgent. As one adviser to small business says: "Many small businesses, especially those which have benefited from the housing boom and from rising house prices, think the good times will continue. They are blinded to the realities happening elsewhere."
Small business's view seems to be shared by some investors and their advisers. One stockbroker told BRW he looked forward to a quick war in Iraq because its conclusion would herald the start of the new bull market. Even by stockbroker standards, that comment is remarkably naive. Markets may rally sharply in the lead-up to, or during, a conflict. Then they will face their real problem: the slowdown in the United States economy.
A quick resolution in Iraq would clearly remove some uncertainty overhanging business and markets, and investment decisions and consumer purchases that were deferred might be made. But, ultimately, markets will not recover until there are signs that the US economy is emerging from its malaise. No doubt market observers hope that an end to the Iraq conflict will provide a sustained boost to the US stockmarket, which, in turn, will revive flagging consumer sentiment there and encourage companies to invest. But if the stimulus is short-lived, George W. Bush will be running out of options to revive the economy. Eventually Australia's economy, robust at present, will suffer.
Small businesses should plan for weaker trading conditions during an armed conflict and the possibility of a faster slowdown in the Australian economy than expected. As with a war in Iraq, let's hope that does not happen."
Many smaller companies and investors appear to be underestimating the effect that a possible war in Iraq would have on the Australian economy. BRW reporters interviewed more than 50 business leaders, across 13 industries, to gauge reaction and gain insights into how they plan to handle business conditions in the event of war. It is understandable that companies do not want to reveal their short-term strategies to competitors, but the level of indifference among smaller companies is surprising.
