WASHINGTON, Nov 8: Fears of a war on Iraq may already be reining in the US economy by delaying business investment plans and stepping up risk premiums on stocks and corporate bonds, experts said on Friday.

As the UN Security Council approved a US-drafted resolution giving Iraq a last chance to disarm, however, experts said the effect on consumers probably would be muted until war approached.

The critical US shopping season, which accounts for 40-to-50 per cent of sales for some retail companies, was likely to be unaffected, economists said.

“Credit risk premiums in both the equity market and the corporate bond market are higher than otherwise because of fears surrounding Iraq,” said Moody’s Investors Service chief economist John Lonski.

“It may very well be that a conflict with Iraq that goes poorly would serve as the most likely trigger mechanism for a double dip recession,” Lonski warned.

If an attack went awry, he said, sharply higher oil prices coupled with greater than anticipated casualties would further diminish business and consumer confidence.

The Federal Reserve said on Wednesday that the Iraqi tensions were dragging on US economic activity when it slashed the key federal funds rate target by half a percentage point to a new 41-year-low of 1.25 per cent.

“Incoming economic data have tended to confirm that greater uncertainty, in part attributable to heightened geopolitical risks, is currently inhibiting spending, production, and employment,” it said.

Concerns over Iraq were also cited in a private Conference Board survey that showed consumer confidence plunged to a nine-year low in October. Job fears were also a major factor.

Most economists expect US economic growth to decline to less than two per cent in the fourth quarter as consumer spending drops, largely due to lower auto sales, after third quarter growth of a 3.1 per cent.

Joel Naroff, president and chief economist of Naroff Economic Advisers, said businesses were likely delaying 2003 investment plans to later in the year.—AFP