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Recession odds seen rising if war drags on
CFO survey also sees revenues, investment at risk
By Rachel Koning, CBS.MarketWatch.com
Last Update: 11:34 AM ET March 20, 2003



WASHINGTON (CBS.MW) -- If war with Iraq drags on longer than the few weeks or months most are predicting, corporate revenues will be flat for the coming year and will put the U.S. economy at risk of recession, according to a poll of chief financial officers.

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Beyond a prolonged conflict, any retaliation with weapons of mass destruction or terrorist acts would spell severe declines in revenues and, almost assuredly, a tumble for the domestic economy, Financial Executives International said in its March "CFO Outlook Survey" released Thursday.

The survey of 186 CFOs, conducted in conjunction with Duke University's Fuqua School of Business, also found that war continues to be a significant deterrent to capital investment across Corporate America.

By contrast, the CFOs predict that a short war with a minimum number of casualties means revenues will be up 8 percent over the next 12 months.

If the conflict continues for more than six months, revenues would remain flat. But significant Iraqi retaliation equates to an 8 percent drop in revenues -- a decline unheard of over the past 40 years, the group said.

Historical perspective

"It is very likely that the long-war scenario, with zero sales growth, will push us back into recession," said Duke professor Campbell Harvey.

"During the last five recessions, sales revenues actually increased," he noted.

Should Iraq stage a surprisingly strong retaliation, any resulting sales revenue drop could lead to "severe economic contraction," Harvey said.

The group said that 67 percent of CFOs polled in the latest survey said they are only cautiously investing or not investing at all.

"This is a major factor in keeping the economy in limbo. Without more robust capital spending, it is unlikely we will see growth in non-farm payrolls," Harvey said.  

Rachel Koning is a reporter for CBS.MarketWatch.com in Washington.


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