- The Washington Times - Thursday, February 13, 2003

LOS ANGELES, Feb. 13 (UPI) — The potential war against Iraq was a major caveat in a report issued Thursday that predicted modest economic growth in the greater Los Angeles area during the coming months.

The Los Angeles Economic Development Corp.'s forecast for 2003-04 concluded that the five-county region would continue to be weighed down by a sluggish national economy — and further hampered by a protracted military campaign in the Persian Gulf.

"There is a huge uncertainty out there," noted Jack Kyser, the LAEDC's chief economist. "If there is a war with Iraq, consumers will stay home. The last thing on their mind is looking for a new home or looking for a new car."

The report is one of the first in the nation to attempt to quantify the impact that a war in the Persian Gulf would have on the domestic economy. It concluded that while California's huge economy in general was struggling, a drawn-out war in Iraq would likely create a drop in spending by distracted consumers, which could lead to an economic domino effect and further depress the economy.

"Household spending will decline markedly during this period," the report predicted. "It is highly likely that consumers will be glued to their television sets and will cut back on shopping and travel, just as they did during the Gulf War and after 9-11.

"Purchases of durable goods, especially motor vehicles, will fall off as will the number of shoppers at retail stores," the report continued. "Some households will forgo their spring vacations or stay closer to home."

Foreign trade would likely decline as well. U.S. companies would probably trim inventories and thus the increased security would slow the movement of cargo through West Coast seaports.

Even a relatively short war lasting three months or less would likely lead to a near-doubling of oil prices and higher inflation. The world economy would likely not return to its normal gross domestic product growth rate of 3.5 percent until sometime in 2004.

"With the world's locomotive not accelerating at full throttle, all of North America, Europe, Asia and Latin America will see their economic engines revving at below normal speeds," the report concluded.

While southern California's valuable aerospace industry would probably benefit from increased defense spending, Washington's preoccupation with international issues could elbow important regional issues to the back burner, including funding for major transportation and infrastructure projects.

A state budget deficit estimated as high as $35 billion is also expected to curtail spending on social programs and education. The LAEDC cautioned California not to seek to balance the budget through measures it sees as further eroding the state's fragile business climate.

"We must recognize that moving already-funded projects to the head of the list will quickly put people to work," said LAEDC President Lee Harrington. "It is important for state lawmakers to understand the impact of job creation, nurturing a positive business climate, and to keep funding for critical infrastructure projects that have a great deal of local and federal dollars behind them."

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