Tuesday's terrorist attacks struck at the heart of America's financial center and dealt a blow to an already fragile US economy teetering on the brink of recession. "It's going to be very difficult" to avoid a recession, said David Littmann, chief economist for Comerica Bank in Detroit. "The problem here is the fragility of the economy and the magnitude of the possible response."
In addition to the devastating human toll of the attacks, the economic toll is expected to be heavy as well amid uncertainty about US economic health. The euro and the price of oil rose sharply while European stock markets plunged in response to the two plane crashes at the World Trade Center in New York and explosions at the Pentagon on Tuesday, September 11. New York financial markets were closed through Wednesday.
"The implications are going to be very far-reaching economically and commercially for months, if not years," said Jeremy Batstone of NatWest stockbrokers. "All points of US strength are being hit by terrorism and that makes the US dollar vulnerable," added Jeremy Fand of UBS Warburg.
In London, the price of North Sea Brent crude soared above $30 a barrel and safe-haven investments such as gold and the Swiss franc rose. Germany's DAX index plunged as much as nine percent during the trading day, with airlines and insurance company stocks falling hard. London's FTSE closed some 5.7 percent lower. US stocks traded in Europe tumbled, with Microsoft shares down nine percent and Alcoa down 6.7 percent.
"Investors will be wondering if this is the start of a terrorist campaign on the US aimed at high-profile institutions," said Andrew Milligan, head of global strategy at Standard Life Investments.
US economic growth has ground nearly to a standstill in the second quarter, with a growth rate of just 0.2 percent, and stock prices have drifted to their lows for the year. The Dow Jones industrials are 10.95 percent for this year and the Nasdaq is some 31 percent lower.
Some suggest the attacks could further erode consumer confidence, the stock market and the US economy. Some analysts said the Federal Reserve may cut short-term interest rates promptly, before its next scheduled meeting on October 2, in an effort to reassure the public.
"We are looking for a bold move from the Federal Reserve soon, probably before the October 2 FOMC (Federal Open Market Committee) meeting," said economist Dana Saporta of Stone and McCarthy Research Associates.
"Now that we see terrorism actually unfolding before our eyes it is clear that the already faltering indexes of consumer sentiment and confidence should accelerate, should gain momentum to the downside and the concern for the US economy is that consumer spending will slow," she said.
"Given the events in the US on Tuesday, it would appear that a Fed cut in the very near-term looks more likely," HSBC Securities economist Marc Chandler said in a note to clients. "The immediate economic implications are not good as the attacks will likely impact output and a wide swarth of the service sector."
But David DeRosa, an economist at the Yale School of Management, said he did not see a long-term economic impact from the attacks. "The loss of human life and suffering is the most important thing; beyond that it's a cruel wake-up lesson to the vulnerability of states to terrorism," he said.
But while the attacks may be a blow to US trading and to Wall Street, DeRosa said that "the US has never been a country that's punched in the gut and rolls over ... it's not going to humble New York, and its not to going to humble the United States, we have to learn and rebuild." ― (AFP, Washington)
by Rob Lever
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)
