The United Nations Conference on Trade and Development (UNCTAD) warned today of an impending recession in three major economies - the United States, Europe and Japan - following the recent terror attacks against the US.
According to a new UNCTAD report, Global Economic Trends and Prospects, there is a "very real" danger that all three major economies will come close to recession. US consumer spending has been hit hard by the attacks and corporate earnings are likely to drop further. European confidence is vulnerable to any signs of labour market weakness and Japan's negative growth looks likely to continue.
Regarding the influence on developing countries, UNCTAD says they may experience weaker exports, worsening terms of trade and diminishing capital flows. All three trends have already set in, but are now likely to intensify.
UNCTAD economists welcome the swift and coordinated response by monetary authorities to lower interest rates following the attacks and to ensure the smooth functioning of financial markets. The report also notes the determination of US policy makers to turn the economy around.
While expressing hope for a quick improvement in the world economy, UNCTAD points out that the US fiscal package may only offset the negative impact of the attacks. The report also argues that Japan and particularly Europe need to assume a much more expansionary policy stance if the global economy is to make a quick rebound.