Iraq war could spark Balearic recession

INFLATION in the Balearics is still running high at around 3.7 per cent, despite the slight increase in the cost of living of just 0.1 per cent last month, with economic growth for 2003 forecast to be between 0.5 and 1.3 per cent. alearic Finance Minister, Joan Mesquida, yesterday laid out the current economic forecast for the year claiming that, providing that there is no war in Iraq, economic growth could reach 1.3 per cent, but should the military strike go ahead, the region may have to be content with just 0.5 per cent growth. he minister explained that last year was a “complicated and unusual one” in which the economy grew by just 0.8 per cent, below the government's initial forecasts and two per cent below the national Spanish average, although it did match euro zone growth. Mesquida explained that the main reasons for economic uncertainty in the Balearics and the currently poor outlook are the economic situation in Germany where the economy is not expected to grow much more than 0.5 per cent this year and the Iraq crisis which is affecting oil prices, the key to the global economy.But, the minister said that if war can be avoided, the price of oil can be held at around $20 a barrel and the general public's fears over travelling can be dispelled, the Balearic economy could grow by 1.3 per cent this year in comparison to 2002. Mesquida added that while war in Iraq is bad news for the economy, the length of the conflict will prove crucial. He explained that a short war will enable stability in the oil markets to be restored relatively quickly, an environment which would encourage Balearic economic growth of 0.5 per cent, but he said that a long drawn out conflict “could prove catastrophic for the economy and global tourism.” But, while the outlook for the immediate future is far from certain, Mesquida said that last year, the Balearic economy's performance was in line with the Euro zone in general, although the slow down was steeper. The economy started last year well, posting 1.1 per cent growth during the first quarter, but by the end of the year, growth closed down at 0.6 per cent while the cost of living rose sharply. Ironically, after years of struggle, the agriculture sector showed signs of growth last year with output rising by nearly three per cent. The construction industry grew by 2.4 per cent, less than previous years because of the construction freezes, but Mesquida said, the sector remained sound and solid for investors. The industrial sector grew by just 0.7 per cent, along with the service sector which was hit by the drop in tourism. But, despite the economic slow down, the minister said that the Balearics is not in recession at present, but a lot depends on Iraq.