The world's economic chiefs must confront gathering war clouds menacing a fragile global recovery at annual IMF-World Bank meetings next weekend, exports said.
"The global economic situation is one of recovery but less buoyant than one had hoped," former IMF chief economist Michael Mussa said.
As finance ministers from the 184 members of the IMF and World Bank gathered Sept. 28-29, a little more than a year after the terror attacks, the threat of conflict in Iraq would overshadow talks, he said.
"There is concern about Iraq and world oil prices as one source of risk," Mussa said.
Further, there were fears that the sell off in global equity markets, as well as an erosion of earlier gains in consumer and business sentiment, could restrain the recovery, he said.
The IMF is widely expected to lower its world growth forecasts when it releases the twice-yearly World Economic Outlook, which in April had tipped global growth of 2.8 percent this year and 4 percent next year.
"The world economy is expanding at a slower pace than earlier thought and risks lie ahead," IMF first managing director Anne Krueger told a news conference last week. "It is obviously expanding, possibly somewhat less rapidly than it was earlier thought," Krueger said. "There are obviously the downward fragilities."
Moussa said the world gross domestic product -- or economic output -- expanded by barely more than one percent in 2001 when compared with the last quarter of 2000.
"I think for the world economy as a whole, again fourth quarter to fourth quarter, it will be around 3 percent this year," he said, citing steady expansion in Asia, a modest US recovery and Japan's emergence from contraction into growth.
Downside risks to the economy would likely dominate the IMF World Bank meetings, Moody's Investors Service chief economist John Lonski said.
"The big worry would be the possibility of another unfavorable external shock from Iraq," he said.
"It seems as though the world economy itself might be in the process of mending from 2001's slump, or sharp downturn." Lonski said. "But I think the reality is that the world economy is not yet strong enough to withstand an adverse shock from outside the realm of normal economic activity."
IMF policymakers faced a great deal of uncertainty, largely because of the threat of military action hanging over Iraq and the possible impact on energy prices and on sentiment among businesses and consumers, he said.
"As long as the threat of a conflict with Iraq is very real, then you cannot dismiss the possibility of a double dip recession [in which the US economy slips back into recession after a brief recovery]," Lonski said.
"A conflict with Iraq is the most likely trigger mechanism for a double dip recession," he added. "That would be damaging to even East Asia, where the Japanese economy has gotten a breather from steppped-up exports to the United States."
Lael Brainard, former deputy economist under then president Bill Clinton and now a senior fellow at the Brookings Institution in Washington, agreed that the US economy and Iraq provided the biggest headache.
"I presume that everyone thinks the biggest single risk factor is the US going into a double dip recession, which of course would not be on the official agenda," Brainard said.
"That going to hinge on what happens in foreign policy -- the big Iraq question."
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