The London Business School with Gower Publishing: Forecast Release: THE GULF WAR: RECESSION AND RECOVERY

The Iraqi invasion of Kuwait occurred at a time when many economies were in or heading towards recession. These trends were exacerbated by the Gulf crisis which had adverse effects on consumer and producer confidence. Now that the Gulf war is over, confidence is recovering but against the background of a relatively severe recession. In this Forecast Release we make use of a simple statistical tool to throw some light on how much of the downturn was due to confidence factors and thus to draw implications for the recovery. In broad terms we find that a large part of the US recession, in particular the downturn in consumer spending, was attributable to the effects on confidence of the Gulf crisis. In both the US and the UK, however, the effects on producer confidence were less marked, though here too the analysis suggests that, at its low point, producer confidence was also adversely affected by the crisis in the Gulf. The latest data show that there has been a full recovery in US consumer confidence but that producer confidence on both sides of the Atlantic remains well below pre-Gulf trends. On this basis, therefore, we would expect a further recovery in industry's confidence over the coming months.