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 percent this year and 2.9 percent for 2003.
One immediate action that the United States and other nations are contemplating is diversifying their energy spending. Countries like Nigeria, Angola and Sudan, as well as Mexico, Colombia and other parts of Latin America, are capable of helping the West replace at least some oil from the Middle East, if need be. Last month U.S. officials visited Africa’s major oil-producing regions, and are now predicting that purchases of oil from West Africa may rise to as much as a quarter of America’s total consumption requirement by 2015.
Despite this, developing countries as a whole are likely to be hit hardest and longest by the global economic downturn exacerbated by 9-11. Not only is foreign direct investment down, but there’s also a concern that remittances from migrant labor will suffer as various countries around the world tighten up on immigration. Countries like Pakistan, the Philippines, Thailand and Indonesia would be among those most affected. There’s also a concern that developing-country exports could be unduly affected by tougher transport-security measures.
Europe is also adjusting to the post-9-11 world. As part of its new Container Security Initiative, Washington has signed bilateral deals with a number of large European ports, which are allowing U.S. Customs officials to prescreen high-risk containers before they leave European soil. European Union Customs officials are worried that this will create an uneven playing field for smaller players, as goods from “safe” ports might be fast-tracked into America.
The new emphasis on security has raised costs for private companies. Commercial property- and liability-insurance premiums are estimated to have risen by an average of 30 percent worldwide since the terror attacks. Many small and medium-size firms can’t pay the higher premiums and may be forced to close down. Experts have estimated that all the security measures proposed by the United States and other countries may increase the cost of trading internationally by 1 to 3 percent, which could slow trade growth. The debris may be gone from Ground Zero. But clearly, the economic fallout from the attacks will be felt for years to come.
