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Tuesday, 11 September, 2001, 21:06 GMT 22:06 UK
Attacks 'blow to US revival'
F-16 Hornet
Economists expect a US military response
Attempts to rebuild confidence in the US economy have been set back months, if not longer, by the attacks on the World Trade Center and the Pentagon, economists have warned.


The scale and scope are so big, we are just trying to take it in. But there are bigger things at stake than profits and losses

Nick Parsons
Commerzbank
While they say they cannot even begin to quantify the economic cost, some expect the US to take measures including a military attack to try to rebuild faith in the world's largest economy.

The US economic slowdown may also be deepened by the attack on New York City, the country's financial capital, whose bread-and-butter industries were already hurting.

The main objective, in the short-term will be to re-open the main US stock markets.

The American Stock Exchange, the New York Stock Exchange and the Nasdaq announced on Tuesday evening that they would remain closed throughout Wednesday.

Analysts were predicting that it could take several days for the markets to re-open again.

Impacting Europe

"This is a big blow," said Hans Redeker, economist at BNP Paribas.

"It could take several months but the US will be ready to take action to rebuild confidence and there will be a military strike."

The blow to US sentiment will impact Europe, Japan and the rest of the global economy but by how much is difficult to say, economists said.

"I wish I knew," said Nick Parsons, chief currency strategist at Commerzbank in London.

"The scale and scope are so big, we are just trying to take it in. But there are bigger things at stake than profits and losses."

Confidence hit

The US economy has experienced a sharp economic slowdown this year but has been kept afloat by consumer spending and so far avoided a recession.

"It is not a good thing for consumer confidence or investor confidence," said Mr Redeker.

"The US Federal Reserve will now cut interest rates by 50 basis points on 2 October and there could be another cut in the November," he added.

The Federal Reserve has cut interest rates seven times this year to try and keep consumers spending.

But Friday's higher-than-expected US jobless figures of 4.9% for August heightened recession fears on Wall Street because consumers could stop spending over fears for their jobs.

Big apple hurting

Over the past eight years, Mayor Rudolph Giuliani had changed the country's financial capital into an economic powerhouse and restored confidence in safety using hardline tactics against street crime.

But New York City's dynamic tourism trade had flattened, joblessness was rising and tax revenues were expected to fall.

Tuesday's attack is likely to heighten those concerns.

Despite the US Fed's interest-rate cuts, New York City's economy has slowed, growing just 1.3% in the last quarter.

That was well above national growth of 0.7% but was down from 2.3% in the first quarter of the year, according to the city's financial controller.

Jobs growth halved

Jobs growth halved from the first quarter and the city's unemployment rate of 5.3% has stayed above the national average in the second quarter.

Wall Street jobs fell by 6.8% in the first half of the year and fat end-of-year bonuses, which totalled $13.3bn in 2000, are expected to be slashed, cutting the city's income tax bonanza.

The city has also slipped from being the country's second most popular tourist destination to number three.

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