Panelists sound note of cautious optimism on postwar economy

Gary Gentile

Wednesday, April 2, 2003 | 9:45 a.m.

BEVERLY HILLS, Calif. -- Although a number of uncertainties remain, the economy is on much better footing than it was during the Gulf War of 1991 and should rebound after the fighting in Iraq ends, according to a panel of experts.

The stock market could be among the forces that drive that economic recovery, said Forbes Chief Executive Steve Forbes. He predicted stocks will grow 20 percent to 30 percent after the war as investors seek outlets for cash.

"There is $2 trillion sitting in cash right now," said Forbes, who took part in the annual Milken Institute Global Conference here Tuesday. "There is a lot of pent up demand. Some has gone to houses and some to the high-yield sector and at some point it will go into the stock market."

Forbes cautioned, however, that stocks will not continue to rise at that level and that even a substantial increase will not restore the major indexes to previous highs.

A number of uncertainties will also remain even after the end of the war, the panelists cautioned, including potential conflict with North Korea.

Panelists said factors other than war also will affect the economy, including the success of President Bush's tax cut plan and trade policy.

"Companies continue to be cautious about investing because of uncertainty," said Joseph Neubauer, chief executive of Aramark Corp.

Suzanne Nora Johnson, director of global investment research at Goldman Sachs & Co., said oil prices are also likely to rise and could go high enough to cancel the benefits of a tax cut for most consumers.

"We believe the supply of oil is at its lowest point in 30 years," Johnson said. "That is going to continue to put pressure on oil prices in the near term regardless of the war."

A $10 per barrel rise in oil prices reduces real disposable income by $50 billion, or $400 per household, she said.

She also warned that costs associated with the war cannot be foreseen.

"The cost of rebuilding Iraq is likely to be larger than any of us imagine today," she said.

Several panelists said President Bush will succeed in getting a tax cut passed this year, in spite of recent opposition.

"I think if the president comes out of the war with political capital, he'll get at least 50 percent," of what he is seeking, said Glenn Hubbard, who recently stepped down as chairman of the Council of Economic Advisors.