Thu, Sep 20, 2001 page21

• Post-attack US recession likely

  FISCAL FALLOUT As the world slowly recovers from last week's attacks, the demand for and delivery of goods will be inhibited, and the global GDP may drop

  • REUTERS
  • • 
    • 
    • 

  The world is rapidly running out of central banks left to ease with New Zealand and South Korea yesterday becoming the latest to join the rate cut club.

  However, analysts suspect that, like all those individuals touched by last week's horrifying attacks, the global economy will still have to undergo its own period of mourning.

  

  A man looks up to try to see the wreckage of the World Trade Center as smoke from the still smoldering site of the disaster fills the air along Wall Street outside the New York Stock Exchange, Tuesday. As the one-week anniversary of the attacks passed, the gears of the global economy again began to turn.

  PHOTO: REUTERS

  "The world's financial and economic outlook has changed," said the global strategy team from ABN Amro in its first assessment of the impact of the attack.

  "The US economy has suffered a massive shock ... and is likely to go into recession. The short-term shock will flow right through the global economy, lowering forecasts for growth, corporate cashflows and profits," was its sober conclusion.

  ABN slashed its 2002 GDP forecast for the US to zero from 2 percent before the attacks.

  And they knocked almost one percentage point off their world growth forecasts both for this year and next and predicted a drop of more than a percent in global trade.

  They also noted a new physical threat to trade as a heightened sense of security was set to make the movement of goods harder, delivery times longer and transport costs higher.

  That was especially grim news for Asia where so many are reliant on Western consumers to buy their exports. After all; "More goods consumed in the States are produced by Asia than by the US itself," noted ABN.

  "A drop in US consumer spending would clearly hurt Asia," noted Bill Belchere, head of Asia economics at Merrill Lynch in a special report on the impact of last week's tragedy.

  Exports to the US account for fully 11 percent of Asian GDP, excluding Japan, and much of that was concentrated in the high tech area which was already in freefall.

  Factored in

  The only comfort was that expectations for exports had already been cut back sharply before the attacks with Merril seeing sluggish US growth out to the middle of next year.

  Many regional countries were also limited in their scope for policy response beyond the rate cuts already delivered and the provision of short-term liquidity.

  "Should the crisis prove to have an enduring effect on global demand, the relative openness of Asia suggests only China, India and Australia will remain insulated," said Belchere.

  Those three countries are among the few in the region with large domestic economies and the policy flexibility to react.

  Faced by such global contagion, central banks have not been slow in responding. Following the Federal Reserve's lead, both the Reserve Bank of New Zealand and the central bank of South Korea announced surprise 50 basis point cuts in key interest rates on Wednesday.

  The Bank of Korea's move took rates there to record lows.

  The Philippines surprised by not easing policy, but analysts reckon it is only a matter of time.

  The Bank of England stunned many on Tuesday by cutting its rates, despite having given the impression that there was no need for an emergency move.

  The Bank of Japan's loosening of its already hyper-easy policy came as no surprise to anyone, though some analysts argued the bank should have gone even further.

  "It was a disappointing move. We and the market were expecting a more aggressive move," said Matthew Poggi, an economist at Lehman Brothers in Tokyo.

  In particular the bond market was put out the bank did not pledge to buy more JGBs and yields ticked higher in response.

  As if sensing the market's displeasure, the BOJ did expand the daily reserves in the banking system to a massive ?9.5 trillion (US$80.67 billion) from Tuesday's US$8.06 trillion.

  The extra amount included funds from its foreign currency intervention on Monday and the sheer scale of the increase suggested to dealers that the bank sold a lot more yen than anyone had first thought.

  Indeed, the Japanese underlined their determination to restrain the yen on Wednesday by stepping back into the market and buying dollars. The dollar duly rose to around ?118.00 from an early low of 117.10, while Europe's single currency edged down to US$0.9250 from US$0.9270.

  Japanese Finance Minister Masajuro Shiokawa drove home the point by quickly confirming the intervention and reiterated his threat to act whenever appropriate.

  On a wing and a prayer

  However, across the Pacific news was breaking that highlighted just how grave a blow had been struck to the US economy.

  Boeing Co, the world's biggest jet maker, announced it would lay off between 20,000 and 30,000 workers in its commercial jet unit by the end of 2002 and slashed forecasts for plane deliveries both this year and next.

  The planned job cuts would represent between about 20 and 30 percent of the 96,600 people employed by Boeing's commercial jet unit. US airline carriers already have taken austerity measures and are expected to eliminate more than 100,000 jobs as a result of reduced demand.

  "We profoundly regret that these actions will impact the lives of so many of our highly valued employees," Alan Mulally, president and CEO of Boeing's jet unit said in a statement.

  "However it is critical that we take these necessary steps now to size the ... business to support the difficult and uncertain environment faced by our airline customers."

  The Bush administration is moving forward with a government bailout of the US airline industry which could cost up to US$24 billion.

  That comes on top of a US$40 billion emergency spending bill already passed and plans for an economic stimulus package are in the works, blowing holes in previous projections for the federal government's budget surpluses.
• Most Popular

  • 1

    Eurovision Song Contest triggers surge in betting interest

  • 2

    Barcelona crowned champions

  • 3

    Entertainers questioned amid military service furor

  • 4

    Sinner cruises past Ruud, Gauff battles into final

  • 5

    SPEAK UP: 2025 World Masters Games open on 5/17 in Taipei (1/2) 2025雙北世壯運5/17開幕（上）