"I and a few others are trying to make sure that these geopolitical tensions do not spill over into trade, investment and the economy," said Trade Commissioner Pascal Lamy, after meeting Malaysian manufacturing bosses during a week-long Asian tour.

"We already have a world economic situation that is not so promising."

The French commissioner's characteristically understated remarks follow a spate of wake-up calls from other global business and political leaders over deteriorating economic conditions.

In a newspaper interview published on Wednesday, the chief economist of the Organisation for Economic Cooperation and Development, Jean-Philippe Cotis, halved his 2003 EU growth forecast.

The economy of the 15-member bloc would grow by less than one percent, he predicted, rather than the 1.9 percent forecast by the OECD last November.

The governing council of the European Central Bank should reduce its key interest rate of 2.50 percent by a quarter-point when it meets on Thursday, Cotis said, to counter falling consumer confidence.

The revised OECD forecast is also shared by the Institute of International Finance, an influential body representing banks, fund managers and finance houses.

The IIF and its 320 member institutions in 60 countries called on Group of Seven (G7) finance ministers meeting next week in Washington to commit to concrete measures including interest rate cuts in the event of a global economic meltdown, brought on by conflict in Iraq and the months of uncertainty leading up to it.

The Iraq war was not the only problem weighing heavily on the world economy, the IIF argued, attacking the "twin deficits" run up by US President George W. Bush's administration in both the current account and budget.

"Concerns about the economic outlook reflect not only the Iraq situation but also the underlying fragility that is a consequence of the lingering imbalances and excesses accumulated during the bubble years," wrote IIF director general Charles Dallara in his letter to the G7 ministers.

He called for firm pledges to reform pensions and taxes in Europe, banks and companies in Japan and corporate governance in the United States.

The London-based Economist Intelligence United endorsed part of the IIF's diagnosis in a report also published on Tuesday, which said the US public deficit was acting as a significant damper on growth.

The IIF's call came as surveys on Tuesday showed the Iraq war was already having a chilling effect on US economic activity -- widely credited with keeping the global economy out of recession despite a downturn.

US manufacturing activity, measured by the Institute for Supply Management purchasing managers' index, slumped to 46.2 points in in March from 50.5 in February, breaking four consecutive months of growth. A reading below 50 points indicates an industry contraction.

Meanwhile the all-important American consumer, glued to television for the opening shots of the Iraq war, sent US retail sales into a 1.4-percent slump in the week ending March 29, according to a barometer drawn up by Bank of Tokyo-Mitsubishi and UBS Warburg.

SPACE.WIRE