International financial commentators are rejoicing the fact that after their steep fall, the Dow Jones index and the NASDAQ have recovered to their pre-September 11 level in a month’s time. This is of significance because it raises the question as to whether the downturn in the US and elsewhere in the world economy, which had begun before September 11, would also be reversed or if the performance of the US economy would not be as poor as has been predicted  by a number of analysts.
 
Needless to say, nothing is quite the same after the September 11 terrorist assault on targets in the US. For quite some time to come, discussions on global and national developments are likely to be dominated by comparative narratives on what held before the events of that day and how things changed thereafter. As yet, it is too early after the event to shift focus from the scale and monstrosity of the human tragedy that occurred that day. But as America and the world strive to return to routine, however different or new, among the questions that linger is one on the likely impact of those events on the global economy. Hence, though issues related to growth and recession seem inconsequential when close to 6000 people are still reported "missing", an assessment of the economic fall-out is called for, even if largely speculative.
 
The immediate economic impact derived from a range of sources, some of which appear to be part of the design of the attack on the US. The World Trade Centre was in itself and by location the hub of New York seen as the pivot of world finance. Some destabilisation of the world’s financial system was inevitable. The use of commercial aircraft as weapons of war, has obvious implications for the viability of the airline business on both security and profitability grounds. Disruption of communications, supplies and business confidence were inevitable. And, if the attack succeeds in driving the US to war, then expectations of disruption in the world economy are likely to be realised, since the US economy has served as the locomotive for global growth.
 
Uncertainty is the immediate consequence of a shock of this magnitude. The markets affected first and most intensely by such uncertainty are financial markets that are driven by whimsical sentiment and herd-like behaviour. With financial markets closed in the US, the initial signs of this kind of fall-out occurred elsewhere in the world. As expected, stocks of airline and insurance companies directly affected by the crisis plunged. Financial firms exposed to such stocks took a beating. And as equity values collapsed, panic led to a migration of investors away from equity to debt in capital markets and away from capital markets to commodities and gold. Though the world had left the Gold Standard behind a long time back, the yellow metal was once again a safe haven for the bruised investor. In the event, a developed-country market like that in the UK had by the time of writing recorded a fall of 12 per cent in a period of 10 days. The New York Stock Exchange fell significantly, when it opened with a brave face and with strong support from the government and a campaign to pump-prime investor solidarity. And as foreign institutional investors rearranged their portfolios through sales in emerging markets like India, the Bombay Stock Exchange Sensex index, for example, collapsed to an 8-year low.
 
There were other immediate developments, which triggered fears that the normally transient responses such as a fall in consumer spending in the US, attributed by some to the fact that citizens were glued to their TV sets, could endure in the form of depressed consumer confidence that curtails spending and encourages saving in the wake of uncertainty. Among these were the threats that broken transportation links could disrupt the supply chain of businesses and drive down profitability, and that oil prices could rise in the event of a war and trigger inflation amidst slow growth.
 
It must be said that the response of the US administration and the Federal Reserve to the shock was immediate. The Congress cleared a generous $40 billion emergency relief package, the Fed pumped liquidity into the system to support markets and reduced interest rates more than once, and President Bush persuaded Congress into working out an emergency airline aid package, consisting of $5 billion in cash aid and 10 billion in loan guarantees, to compensate the airlines for the losses they had suffered and would suffer. These moves make clear that neutralising the adverse impact on the US economy of the terrorist attack, is an essential part of the war that the US plans to wage in the days to come.
 
These developments are of significance when the state of the US economy, the world’s growth locomotive since the mid-1990s, just prior to the assault on New York and Washington, is examined. The now irrelevant "Beige Book" of the Federal Reserve that had been prepared prior to the attack, had according to reports painted a grim picture of the economy in August and early September. Sluggish and even declining consumer spending, softening demand for labour and falling profits did not bode well for the future. Moreover, the draft version of the IMF’s World Economic Outlook which was being prepared for the now cancelled meeting of the World Bank and the IMF had concluded that: "Over the last four quarters the major advanced countries have for the first time since the early 1980s experienced a broadly synchronised growth slowdown."
 
According to Martin Wolf of the Financial Times London, the Outlook reported that: "In the second quarter of 2001, global output fell. US output grew at an annualised rate of just 0.2 per cent. So did that of the eurozone. As for hapless Japan, it has slipped into its fourth recession in the past 10 years, with an annualised decline in output of 3.2 per cent. Among the group of seven leading economies, the UK grew fastest, at an annual rate of 1.3 per cent. Output declined in most of emerging east Asia in the second quarter, the most significant exception being China. Latin America's aggregate output also shrank, led by Brazil and Argentina."