Last month's terrorist attacks against the United States will have far-reaching economic effects, further slowing a world economy already growing at its lowest rate in a decade, according to a report released today by the United Nations.
The report, which was prepared as an update to the UN's World Economic and Social Survey 2001, says the earlier hope for a global recovery in the second half of this year has been replaced by the expectation of a "tepid" recovery in mid-2002. The growth of world gross product is expected to be only 1.4 per cent for 2001, with only a partial recovery to 2 per cent next year.
"The world economy was already in a state of slowdown," said Ian Kinniburgh, Director of Development Policy Analysis at UN the Department of Economic and Social Affairs, introducing the report at a press briefing in New York. He said the events of 11 September "came at a very unfortunate time."
Acknowledging that the full economic repercussions of the 11 September attacks remain unknown, the report assesses the possible consequences by examining a range of factors. While the cost of lives lost cannot be measured, the cost of the physical destruction in the United States is estimated to be around $40 billion. "If the current military campaign escalates, destruction will likely increase and more economies will be involved," notes the report.
The attacks have also caused a disruption of economic activity in a number of industries, notably airlines, insurance, travel and finance, and "the damage is spilling over to more and more sectors, such as manufacturing, retailing and technology."
Even more damaging than the initial destruction and subsequent disruption is the erosion of confidence caused by the attacks, according to the report. "The direct economic consequence of eroding confidence will be heightened risk aversion by business investors and a withholding of household spending by consumers," it states. "The nervousness and apprehension of investors and consumers may lead not only to depressed demand in the short-to medium run, but also to reduced expansion of supply capacity and lower potential long-term growth."
The UN report anticipates a worse than previously expected downturn in the United States, with the attacks expected to cause "an absolute decline in gross domestic product in the third and fourth quarters."