A Blow to Global Trade.(Brief Article)

One year on from 9-11, it's clear that the terrorist attacks that rocked America have also shaken the world economy. But exactly what has been the global economic effect of the disaster? We know its most obvious costs--physical losses of more than $16 billion for U.S. businesses and governments, an additional $11 billion in rescue and cleanup, and countless billions more for increased spending on public and private security in the United States, as well as in many other countries. The medium- and long-term implications are tougher to analyze. "We now know that the U.S. economy, as well as that of Europe and Japan, had slowed down a lot more before 9-11 than we initially thought," says Ian Kinniburgh, director of development-policy analysis at the United Nations. "That makes the direct economic effects of 9-11 tough to measure."

While good monetary policy and crisis management have helped global equity markets bounce back from 9-11, we're only just beginning to see the negative effects of the attacks on trade flows, global productivity levels and global economic growth. Six months after the disaster, the S&P 500 was actually up 15 percent from levels immediately after the attacks. Global tourism is also recovering, and despite the fact that 9-11 was the biggest single event ever for the insurance industry, no major insurance firm has gone into bankruptcy. Airlines, of course, are a different story. Nearly all suffered a major loss of demand, and a few have gone under (though many were already in mediocre financial shape before the attacks).

Economists say that the many security measures being put in place may slow down global transport and have a dampening effect on world trade, which was up 12 percent in 2000, flat in 2001 and expected to rise only 2 percent or so this year. (U.S. companies alone may spend $40 billion this year on security.) What's more, at least some of the "peace dividend" of the 1990s is being lost as governments boost public spending on defense and intelligence around the world. Terror fears certainly have hurt investor confidence: foreign direct investment in developing countries, which was down in 2001, is predicted to fall even more sharply this year. All this, coupled with rising oil prices, may ultimately slow global economic growth. Consensus Economics, a London- based macroeconomic forecaster, estimates that global GDP growth will be 1.7 ...