Even before the attacks on the US, the US was already close to recession, Japan was in recession and Europe was slowing. All these had negative implications on world trade and Third World exports. The attacks caused a shock and further weakened investor and consumer confidence, stock markets tumbled and the airline and insurance industries in particular suffered big losses. The attacks therefore deepened the global slowdown than otherwise would have occurred.
On the other hand, the attacks put the West on a war footing, making government support for distressed industries more politically acceptable and encouraging spending for war-related activites. In the long run, the war on terrorism will also accelerate the upturn of the West and the world economy, making it sharper than otherwise. As one CNBC resource person said, "The market likes war." Besides, data shows the US usually recovered from the negative effects of unexpected political shocks in six months" time.
However, this assumes that the war will be successful in containing the terrorist threat. If terrorist counter-attacks cause further disruptions on air and shipping lanes, the oil supply lines for example, then the effects of war spending will be dampened.
All told, short run prospects are bad but most analysts expect the upturn to happen in the first half of 2002.
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