The US-led war in Iraq could worsen the already fragile world economy, EU Trade Commissioner Pascal Lamy warned yesterday, as coalition forces pushed closer to Baghdad.

"I and a few others are trying to make sure that these geo-political tensions do not spill over into trade, investment and the economy," Lamy told reporters after addressing the Federation of Malaysian Manufacturers.

"We already have a world economy situation that is not so promising," he said.

Lamy is o­n a week-long tour to boost trade between the Association of Southeast Asian Nations (Asean) and the European Union. He visited Thailand Tuesday and flew to fly to Laos later Wednesday.

The EU will open a regional office in Malaysia in the middle of this year to bolster trade and economic links between the two regions, he said.

Asean groups Burma, Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

Bearing higher costs

FMM vice president Paul Low said Malaysian manufacturers had already been hit by the Iraq war and the outbreak of a deadly pneumonia strain which has struck several Asian countries and sparked a global health scare.

"The shipment of goods to the Middle East countries like Kuwait and Bahrain (has been affected), there are cancellation of orders, mostly for electrical goods," he told reporters.

Low said manufacturers also had to bear higher insurance premiums due to war risks.

He predicted that war and a slowdown in the growth of Western economies would see Malaysia's manufacturing growth for 2003 drop to around two percent from four percent last year.

Low said it was usual for buyers to come to Malaysia in April to look at textile and other products before placing orders, but "it looks like they are not coming."

This was possibly due to the war and the outbreak of Severe Acute Respiratory Syndrome (Sars), he said. AFP