Posted on 09/11/2001 2:12:16 PM PDT by oxi-nato
LONDON (Reuters) - The shock to financial markets from Tuesday's devastating plane attacks in the United States could have huge repercussions for an already-fragile world economy, stunned analysts said as they watched events unfold. Stock markets around the world plunged and oil prices soared after two planes crashed into the World Trade Center in New York and another plane slammed into the Pentagon in Washington D.C.
Nervous investors fled to the safe haven of government bonds as the uncertainty from the wave of what seemed like terrorist attacks spread around the world. "This could trigger a recession," said Mats Kinnwall, chief international economist at Swedish bank Handelsbanken. Federal Reserve Bank of New York President William McDonough, speaking in Switzerland, said the U.S. central bank would provide liquidity to financial markets as needed. "Certainly part of our procedure is to provide that liquidity which is needed," he told Reuters from Basel, after attending meetings at the Bank for International Settlements.
In Washington, the U.S. Federal Reserve confirmed it was open and operating and that its discount window would provide liquidity as necessary. Soaring oil prices in 1999 are widely blamed as one of the key reasons the world economy began to slow late last year and Tuesday's renewed surge of more than 10 percent in world crude prices to over $31 a barrel was eyed nervously by analysts. "The initial impact will be on the price of oil. We don't know how long that will last but it's clearly not good for growth," said Douglas McWilliams, head of independent think-tank the Centre for Economic and Business Research in London.
And the tumble in stock prices -- if sustained when the New York stock market reopens -- could deal a hammer blow to consumer confidence and spending, which, at least in the U.S. and Britain, have proved remarkably resilient to the recession conditions in both countries' manufacturing sectors.
CONSUMER CONFIDENCE KEY Were it not for free spending consumers, encouraged by sharp interest cuts, much of the world's economy would probably already be in recession. "Especially when we're going through a bear phase, this unprecedented attack could have a huge impact on the world economy," said Kirit Shah, head of research at Japanese bank Sanwa International in London. "It further increases the chance of a U.S.-led global recession, and could give scope for further Fed easing," he said, referring to the rash of interest rate cuts this year from the U.S. Federal Reserve in a bid to breathe life into the increasingly moribund U.S. economy.
Gustav Horn, chief economist of the DIW institute in Berlin, said he expected markets after their initial shock reaction would calm down. If not, central banks must be ready to inject massive liquidity into the financial system. The U.S. economy, by far the biggest in the world, grew only 0.2 percent in the second quarter and analysts were worrying on Tuesday that the attacks could finally tip that meagre growth rate into negative territory. "This comes at a time when some people had begun to start talking of the U.S. entering recovery. This must put off any talk of a recovery for a quarter or two," said Daniel Kaye at Capital Economics, an independent consultancy in London.
Robert Bergqvist, chief analyst at SEB Merchant Banking in Stockholm, was less sanguine. "In a worst case scenario this can lead to a recession in the U.S. because of growing uncertainty, which will hit investments and share prices, which in turn will affect American households."
POLITICAL REPERCUSSIONS NOT KNOWN Adrian Jarvis, head of strategy at Morley Fund Management in London agreed: "If the U.S. was on the brink of recession, and may have avoided it before, now they will not avoid it," he said, drawing a parallel with the Gulf War in 1990 which he said tipped the U.S. into recession a decade ago. McWilliams said there was still a great deal of uncertainty about what may happen in the days or weeks ahead. "The best case scenario is that everything we've heard of so far is all that is going to happen, but that might not be the case. We don't know what the full political effect is and we have to assume that the Americans won't take this lightly."
He and Kaye also made the point that there would also be an effect on economic activity caused by the disruption following the blasts and from the number of people killed, which seems likely to run into thousands. "We have to assume that quite a lot of high producers in the financial markets have been killed and won't be easily replaced," said McWilliams.
He is powerless. The problem was productiviy. Real productivity. Not paper productivity. Before the bombing we were on the road to financial ruin. Similar to what happened in Japan, but worse. Japan with unproductive citizens. There was no way our young people were gonna work hard enough to support a bloated system. Heck they grew up thinking the market could only rise. But now that we are at war and the WTC is gone, perhaps that will change.
On another note, Khadaffi is saying that this incident is horrifying and that all muslims in the world should unite to help the U.S. That's when you know it's bad!
The personnel and records of a number of financial outfits were lost today. This will translate into bad things happening in the economy.
No Muslim nation feels safe tonight.
That's the way it should be. Rats sing like canaries when there's a boot on their necks.
Japan has a different set of problems.
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