Look for a U.S.-led economic revival in the second half of this year, maybe even sooner, BMO Nesbitt Burns Inc. chief economist Sherry Cooper predicts.

Copper said in a report Thursday that despite the doom and gloom from the war in Iraq, SARS, and even the cold weather, the outlook should improve because both consumers and business have postponed spending plans.

She notes the war has gone quite well, no chemical weapons have been used and the Middle East is not engulfed in conflict.

“Financial markets are already signaling a reduction in tensions. Gold prices have fallen nearly $60 from their 6.5-year high and oil prices are also down sharply. Lower oil prices will boost the struggling world economy. They will help ease U.S. gasoline prices, which reached record levels in the past month or so, and give some relief to households and businesses hard hit by the rise in fuel and heating prices,” Cooper says.

In the financial markets, credit spreads have narrowed as default risk has diminished, corporate earnings are rising, profit margins are rising as productivity is surging, and corporate cash flow is improving.

“The financing gap – capital spending minus internal cash flow – has fallen sharply, and operating leverage is rising. Any increase in top-line revenue growth will be magnified in the bottom line in coming quarters, improving earnings momentum and stock market valuation,” she says.

“The economy has faced enormous headwinds in recent months. As we were finally coming out of the doldrums generated by the corporate scandals of last summer, we were battered by renewed terrorist threats, the purgatory of the UN weapons-inspection debate, and the seemingly interminable winter weather. It is no wonder that the incoming data for February and March have been so bad. Both consumers and business managers are paralyzed by these developments, compounded as well by the SARS epidemic in Hong Kong and China.”

But, Cooper says, consumer confidence will rise sharply with a swift military victory. And, productivity-enhancing capital equipment demand is expected to be turned loose once the war is over.

“Already we have seen a significant rise in demand in this sector, and while it might have stalled in the past two months, a resurgence in spending is likely later this quarter. Nonresidential construction, though still declining thanks to considerable excess capacity, is not nearly the drag it once was on the economy. Moreover, business investment generally rises contemporaneously with the rise in utilization rates, so we don’t need to wait until we hit full capacity before we start seeing a further contribution from this sector,” it suggests.

Also, monetary and fiscal stimulus continues to provide enormous support for the economy. “Look for a U.S.-led economic revival in the second half of this year, maybe even sooner.”