The September 11th attack
World economies shudder from attacks

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The economies of the United States, Asia and Europe — which were struggling to avoid recession before Tuesday's terrorist attack — must now absorb the devastating blow to New York's financial core if they are to avoid the first global retrenchment in 10 years.

Tokyo residents update themselves on Thursday's share prices, which rose moderately after Wednesday's plunge. Associated Press

Economists are focused on U.S. consumer reaction. If the attacks lead people to hoard money, the effect on businesses will be grim.

"Before the events, the U.S. economy was one notch away from recession, but consumer spending was sustaining the economy," said Michel Perrin at Cardif Asset Management. "I believe consumer spending will stop and it will take a couple months for it to recover. This will spark a U.S. recession."

The attack "will curb my appetite for shopping," said Bernice Rosen, a U.S. tourist from Los Angeles browsing in shops in central Rome. "I'm worried about spending my money."

James Barty, a strategist with Deutsche Bank, said he anticipates the drop in spending will lead to a 10 percent plunge in U.S. business earnings.

Weaker spending going into September had already led Furniture Brands International Inc., Spiegel Inc., and Pier 1 Imports Inc. to lower sales forecasts.

"The shock of this week's events will hurt consumer spending in September and October, at least, and elongate the economic slump," said Peter E. Kretzmer, an economist at Banc of America Securities LLC in New York.

With retail outlets such as Minnesota's Mall of America closed part of last week, the likelihood of a consumer-led rebound has become slimmer. The mall, with more than 500 stores and average daily sales of $2.36 million, never opened on Tuesday. May Department Stores Co. closed stores in Boston, Chicago, New York, Philadelphia and Pittsburgh.

People who stayed home by choice or because of canceled flights kept away from Internet merchants as well. The research company BizRate.com Inc. said online sales fell Tuesday to $56.3 million from Monday's $92.4 million. Shop At Home Inc.'s home- shopping program went off the air for almost 24 hours, which will reduce sales at the Internet and TV retailer, the company said.

"The probability of a recession in the U.S. will be increased because of this," said Jeremy Podger, who helps oversee $20 billion of assets at Investec Guinness Flight in London. "Europe won't be unscathed." European companies sell 14 percent of their exports to the U.S.

European Central Bank President Wim Duisenberg said that "there may be long-term consequences" for the global economy as a result of the attacks, "but it's far too early to judge what these consequences are going to be."

The attack will cost Swiss Reinsurance Co. and Munich Re, the world's largest reinsurers, about $1.6 billion. British Airways Plc and other airlines may lower their profit outlooks after the attack forced them to halt flights across the Atlantic.

The United States is the largest market for Asian exports. Asian economies, already suffering from the slump in U.S. demand for electronics and other goods, will be hit hard if Americans curtail spending further, said V.N. Gnanathurai, an economist at the Asian Development Bank in Manila. The attacks "will delay recovery by a couple of quarters and also lower gross domestic product growth rates in most of these countries," Gnanathurai said.

Japan's economy shrank 0.8 percent in the second quarter, and Taiwan's government forecast a 0.4 percent decline for the year. Singapore is already in recession. The economy shrank at an annual pace of more than 10 percent in the first two quarters of the year, the first contraction since 1998.

A more immediate concern for many companies following the attacks is keeping the flow of goods moving.

Toyota and Honda were forced to close plants in North America because of a delay in parts shipments across a crowded U.S.-Canadian border, where security has been tightened following the terrorist attacks.

Honda and other Japanese automakers are banning international business trips for their employees due to safety concerns. "No trips to North America. Trips to other parts of the world will be curtailed," said Toyota Motor Corp. spokesman Shigeru Hayakawa.

Off the California coast, federal officials have been stopping and searching ships, slowing traffic. Vessels leaving Los Angeles and Long Beach are being escorted out by the U.S. Coast Guard, and ports at San Francisco Bay and San Diego are on similar alerts.