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The Atlanta
Journal-Constitution, 07/08/05 Thursday's bloody
terror attacks in London could dampen global economic growth by once again
shaking the confidence of consumers and businesses, economists said. In just a few moments, the murderous
rush-hour onslaught in London killed scores of people, injured hundreds of
others and paralyzed one of the world's preeminent financial centers. After hitting a record high Wednesday, oil
fell nearly $2 a barrel before closing down 55 cents to $60.73. That sentiment might change if there is
more attention paid to some news that was lost in the fury of concern about the
London bombings. According to the
Financial Times, senior Saudi Arabian officials had quietly informed their U.S.
and European counterparts that the Organization of Petroleum Exporting Counties
was approaching a time when it will not be able to meet demand for oil. Osama bin Laden’s original
focus was the demand for U.S. troop withdrawal from Saudi Arabia. But those
demands now include other states, such as Iraq and Afghanistan. And the
al-Qaida strategy has both geopolitical and economic implications. Since the
2001 hijackings in the United States, large-scale attacks have come against
Australian tourists in Bali, commuters in Madrid, Spain, and now transit riders
in London. If, as many believe,
the London attackers are linked to al-Qaida, they are hoping to split the
United States from its allies, while dividing Europe, said Adam Posen, senior
fellow at the International Institute for Economics in Washington. "If there are divisions in the
continental alliance, it means less-smart economic policies and fewer countries
in the euro zone," he said. "That will be a drag on U.S. growth and a
drag on world growth." With every attack, the pall of uncertainty
thickens over all economic decisions, said economist Kashif S. Mansori of Colby College in
Maine. And that is a key part of
terror's intent, he said. "It's very hard to measure, but I think it
is very real. It's about confidence and making the future seem less certain. If
the terrorists can do that, it's a successful attack," Mansori said. In economic terms, the
London attacks were in some ways far different from those of 9/11. Still, the parallel between New York
and London is clear, Mansori said. "If you think of it, the target was
really the same as on Sept. 11 — finance and tourism," he said. http://www.ajc.com/news/content/business/0705/08bizbritecon.html Responses to Shock of 9/11 Aided Rebound by Nell
Henderson, Washington Post Staff Writer, Friday, July 8, 2005; D01 Terrorists have caused
carnage with their attacks on Western capitals in recent years, but they have
failed to seriously damage the capitalist economies they revile. Financial
markets steadied quickly after the terrorist bombings in London yesterday in
large part, analysts said, because the attacks are likely to have little or no
impact on the British or U.S. economy. Spain's economy slowed
slightly and then rebounded quickly after the Madrid train bombings in March
2004. And the U.S. economy was already in recession when al Qaeda attacked the
Pentagon and the World Trade Center on Sept. 11, 2001, but it started expanding
again soon thereafter and is now growing at a healthy pace. Groups saying they
have ties to al Qaeda also claimed responsibility for the Madrid and London
bombings. Such attacks inflict serious costs in human and economic terms. They
cause horrible losses of life, destroy property and infrastructure, drain
insurers' coffers and impose heavy security costs on governments and
businesses. They shake consumer confidence and are often blamed for corporate
caution in hiring and investment. But ultimately, the
U.S. and Spanish economies proved resilient enough to absorb these blows.
Britain's probably will, too, analysts said. One reason, they said, is that the
attacks in America and Spain were not followed by more al Qaeda actions in
either country. "If the attacks [in
London] turn out to be isolated, then calm should return quickly," economists at Goldman Sachs U.S.
Economics Research wrote in an analysis yesterday. "That is what
transpired following the Madrid train bombings in March 2004." The U.S. government's
response to the 2001 attacks also provided extra stimulus to an economy that
was then very weak. The economy
had slowed sharply after the late-1990s stock bubble burst, contracting
slightly in the summer of 2000 and again in the first three months of 2001.
After the Sept. 11, 2001, attacks, U.S. commerce nearly froze as the stock
markets were closed for several days, airlines were grounded, hotels emptied,
businesses stopped hiring and many consumers hunkered down at home. The Federal Reserve,
which had already cut short-term interest rates deeply that year in response to
the slowdown, responded to the attacks by lowering rates even more, providing
cash to the markets and cheap money to consumers. Those low rates helped fuel
continued growth in household spending on cars, housing and other things. Meanwhile, the White House and Congress
boosted federal spending on the military and homeland security. Last year, U.S.
federal defense expenditures increased to an amount equivalent to 4.5 percent
of the nation's economic output, or gross domestic product, compared with 3.9
percent in 2001. Local governments, airports and ocean ports spent more to
protect themselves. The economy contracted
again in the third quarter of 2001, and a panel of economists later determined
that the nation had been in recession from March through November of that year
-- although one of the mildest on record.
The economy has grown continuously since late 2001, propelled primarily
by consumer spending. The threat of terrorism still drags the
U.S. economy in various ways, analysts note. Oil prices remain high in part because of continued fears
that tight supplies could be disrupted by terrorist attacks on refineries and
pipelines. Businesses have remained relatively
reluctant to hire and invest aggressively ever since the Sept. 11 attacks
created a sense of economic uncertainty, said Richard A. Yamarone, director of
economic research at Argus Research Corp. "That hasn't changed." And the extra spending on defense diverts
money that could otherwise be invested by private businesses in ways that would
raise living standards in the long run, said Nariman Behravesh, chief economist of Global Insight, a
research firm. Even so, the U.S.
economy shrugged off such concerns and grew a robust 4.4 percent last year. And
several economic worries born right after the 2001 attacks proved unfounded. Many economists then feared the United
States would turn inward, putting the brakes on globalization by putting up
trade barriers or pulling back from overseas commerce. On the contrary, the
process of integrating the world's labor, financial and goods markets has
accelerated in the past four years. Analysts also
predicted then that soaring security costs would slow the growth of
productivity, or output per hour of labor, the key to rising living standards.
On the contrary, productivity growth has been unusually strong for several
years. The threat of
terrorism has added to the cost of doing business, Behravesh said, "but
not enough to do any serious damage to the global economy or the process of
globalization." http://www.washingtonpost.com/wp-dyn/content/article/2005/07/07/AR2005070701927.html |
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