The Impact on the US Economy

IMF projections outdated in light of terrorist attacks.  While the IMF acknowledged the negative impact of the 11 September terrorist attacks in the United States on the global economy, it failed to provide any specific details as to the extent of the impact and maintained its economic projections, which had been elaborated prior to the attacks.  Thus, the October WEO was already outdated on the day of its presentation.   The IMF’s new Economic Counsellor and Director of the Research Department, Kenneth Rogoff, claimed that trying and quantify the implications of the attack for growth in the United States and elsewhere was premature. Nonetheless it is possible to discern the main downside risks to the US economy and to analyse the major spill-over mechanisms on activity in the rest of the world. 

Economic activity grounds to halt amid enormous damages in New York.  The impact on the United States can be divided in two broad categories.  First, the initial damage caused by the terrorist effect and secondly, the indirect, ensuing downside effects.  While common sense suggests that the secondary effects will have a larger impact, the initial damages, nonetheless, are far from being negligible.  The latest  estimates put the actual damage to buildings, telecom and traffic infrastructure at up to US$ 100 billion..  More importantly, however, is the fallout in economic activity.  In the cautious words of Federal Reserve Chairman Alan Greenspan, “much economic activity ground to a halt” in the days after the attack. The passenger and fright airline industry was especially affected due to the imposed ban on flights in the days following the attack.  Estimates put the damage to the airline industry alone at US$ 10 billion.  Other industries, such as hotels, advertisement and the financial services industry, were also severed by the attacks.  Conservative estimates put the total loss in economic activity at US$ 50 billion, which translates into at least one percentage point less in third quarter GDP growth.

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Note:  The above text is an abridged version of the LatinFocus Consensus Forecast briefing for Latin America.  For more details please click here.

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