KARACHI, Dec 3: Geopolitical instability provoked by international terrorism and the Iraq crisis has resulted in a sharp deterioration in the world economic climate, an international survey of business opinion for the last quarter of 2002 reveals.

The survey showed the climate indicator, issued quarterly by the International Chamber of Commerce (ICC) and the Munich based IFO economic research institute, at 86.8 — down from 101.1 in July and significantly below its long-term average of 93.9 from 1989 to 2001.

“Business expectations for the next six months reflect a general fall in confidence — down to 96.5, compared with 114 in July. Our respondents clearly do not expect a strong upturn any time but they do expect the outlook to improve marginally,” Dr Genot Nerb, IFO’s Director Business Surveys says.

He says that turbulence in the capital markets and the political uncertainty caused by tensions over Iraq have had a powerful negative impact. Assessment of the current economic situation — the other component of the ICC/IFO world economic climate indicator — was also down at 76.7 compared with 87.7 in July.

But options on the longer term outlook over the next three to five years gave a brighter picture. Compared with last year’s October survey in the immediate aftermath of the terrorist attacks on New York and Washington, prospects for economic growth have slightly improved on a world average (2.7 compared to 2.5pc).

The survey provides further trends: Worldwide, short-term interest rates are expected to fall in coming months. Long-term rates are likely to stabilize at the current low level. The US dollar is likely to weaken further against currencies in Western Europe and in Australia and New Zealand, but not elsewhere.

The major world currencies — US dollar, euro, yen and the UK pound — are now much closer to equilibrium than in the previous two years.

Responding to a special question on corporate governance, almost half of the respondents (47.7pc) chose a combination of business self-regulation and new government regulations aimed at greater accountability as the best way to raise standards.

The second most widely-supported approach (33.5 pc) was reliance on the pressure of the public opinion, the power of the market place and effective enforcement of existing rules. The lowest support (19.8pc) was for the third option offered tougher and more detailed new government regulation rather than self regulation.