Leading U.S. economists are predicting difficult times for the U.S. and global economies in the wake of the September 11 terrorist attacks. They say layoffs and lower productivity will prevail in a climate of uncertainty.
Speaking at a seminar at the National Press Club in Washington, Diane Swonk, chief economist at Bank One Corporation in Chicago, said she has never seen layoffs occur so fast during an economic downturn in the United States, as firms try to protect their profitability.
"The rate at which layoffs are actually being executed right now has been speeded up dramatically," she said. "Not only were the airline layoffs, some of them accelerated retirements, expedited almost overnight - where reservations offices were closed overnight - we also saw many firms that decided to execute on layoffs they had announced earlier in the year, or even last year, which they weren't sure they were going to have to make, and now they are executing on them in their efforts to defend their bottom line," she said.
A recent World Bank study concluded the terrorist attacks will be severely felt throughout the international economy, due to the central role of the United States in world trade. The Bank predicts about 10 million people worldwide will suffer poverty as a result of the attacks, most of them in Africa.
Richard Berner, the chief U.S. economist for the financial services company Morgan Stanley, fears the global economic slowdown will also slow trade through increased protectionism.
"There is a risk countries and companies will retreat from the process of globalization which I think has been so beneficial for our economy and the world economy," he said. "I'm hopeful that that will not happen but in a slow growth environment, or in a recessionary environment, we often see protectionism surface and countries retreat back into their shells with less foreign direct investment," he said. "That reduction and the mobility of people and capital and goods would slow innovation of trade and lead to lower long term growth rates."
Mr. Berner believes the U.S. economy was already headed for recession before the September attacks. He also says there are currently no engines to help revive the world economy, with Europe and Asia facing a sharp slowdown.
David Orr, a senior vice president with First Union Corporation - one of the ten largest banks in the United States - agrees. He says U.S. government efforts to stimulate the economy are coming too late.
He also said the U.S. economy is slowing down because safety and security concerns are taking precedence over other business matters.
"To me the only certainty is uncertainty and ambiguity," he said. "We all preface our forecasts by saying, barring further attacks, but at the same time the authorities are telling us the probability of further attacks is very high and therefore the potential range of outcomes is very wide," he said.
The U.S. government will release gross domestic product figures for the July-September quarter on Wednesday. All the panelists predict it will show economic output declined at a rate of about one percent, and that more declines are ahead in the coming quarters.