The World Economy Today

Did the attacks on New York and Washington exacerbate an already bad global economic outlook?

October 2, 2001

Did the attacks on New York and Washington exacerbate an already bad global economic outlook?

The September 11 terrorist attacks on New York not only shattered a symbol of global integration, but also exacerbated an already bad global economic situation. The air travel and tourism sectors are seeing a sharp drop in revenues, while stock markets around the world have been battered. Reason enough to look at where the global economy stands — and where it may be heading.

How was the world economy doing before the attacks?

In the first half of 2001, global industrial production fell at an annual rate of 6%.

(Economist)

How are U.S. stockmarkets holding up?

The Dow Jones Industrial Average is down 17% through the third quarter of 2001 — after a 6.1% decline last year. The last time U.S. stock markets fell for two consecutive years was in 1973 and 1974.

(Wall Street Journal)

What happened elsewhere back then?

1973/74 were also the last time that the world’s three largest economies — the United States, Japan and Germany — were all in recession at the same time.

(Wall Street Journal)

Some 10 million people around the world will be pushed below the poverty line of $1 a day because of the fallout of the terrorist attacks.
(World Bank)

What about the global stock market?

Between early 2000 and mid-2001, share prices fell by an average of 28% — erasing $10 trillion of global wealth.

(Economist)

How has U.S. unemployment developed recently?

In the fall of 2000, the U.S. unemployment rate had reached a 30-year low of 3.9%. Currently, it stands at 4.9%.

(Wall Street Journal)

What implications might this have for the U.S. economy?

Every time the U.S. unemployment rate has risen by more than one full percentage point in the past, the U.S. economy went into recession (defined as two consecutive quarters of GDP contraction).

How have U.S. consumers felt in times of crisis?

In August 1990, when Iraq invaded Kuwait, U.S. consumer confidence fell nearly 18%. The index rose again after the United States started military action against Iraq in January 1991.

(Conference Board)

How do stocks perform in times of war?

Between April 1942 and mid-1946 — roughly the time of U.S. involvement in World War II — the Dow Jones Industrial Average more than doubled.

(Wall Street Journal)

How were U.S. airlines doing before the attacks?

In August 2001, prior to the terrorist attacks, the combined loss for the business operations of all U.S. airlines was estimated to be at least $1.5 billion — making this the industry’s worst performance since 1993.

(Air Transport Association)

What impact do the interruptions in air traffic have on the rest of the U.S. economy?

82% of freight inside the United States travels by truck — and only 3.5% by air.

(Economy.com)

The $300 billion decline in the U.S. budget is larger than the annual economic output of all but 24 countries in the world.
(The Globalist)

Are oil prices likely to be affected?

After the Iraqi occupation of Kuwait, oil prices rose to between $45 and $50 a barrel.

(Zurich Financial Services)

Between the terrorist attacks on September 11 and the end of the month, however, oil prices fell by 15%, from $27.63 to $23.43.

(Economy.com)

How has the U.S. economy fared in all this?

Over the 12 months ending in June 2001, U.S. productivity grew 1.5% — the smallest increase since the fourth quarter of 1995.

(Washington Post)

And the U.S. government?

Projections for the 2001 U.S. budget surplus, including Social Security, fell from $304 billion in the spring of 2001 to an expected deficit at the beginning of the fiscal year in October.

(U.S. Congressional Budget Office)

Between April 1942 and mid-1946 — roughly the time of U.S. involvement in World War II — the Dow Jones Industrial Average more than doubled.
(Wall Street Journal)

How much is $300 billion?

That $300 billion decline is larger than the annual economic output of all but 24 countries in the world.

(The Globalist)

How do things look in the rest of the world?

In July 2001, Japan’s unemployment rate rose to 5% — its highest level since World War II.

(Washington Post)

How will all this affect the world’s poor?

Between 20,000 and 40,000 more children will die worldwide and some 10 million people will be pushed below the poverty line of $1 a day because of the economic fallout of the terrorist attacks.

(World Bank)

And finally, is there a historical precedent for these attacks?

The last time Washington, D.C. had been under attack was when the British burned the White House in the war of 1812.

(Zurich Financial Services)

October 2, 2001