Economic Consequences of the 9/11 Terror Attacks

Table of Contents

1. Duty

2. Introduction.

3. The fiscal impact
3.1 The short-time-impact
3.2 The immediate effect....
3.3 The long-term consequences..

4. Harmful effects on branches
4.1 The tourism industry.
4.2 Airlines
4.3 The aircraft industry
4.4 The oil market
4.5 Insurance
4.6 The Entertainment
4.7 Other branches

5. Business that benefit
5.1 The defence industry

6. Conclusion..

7. Figures.

8. Table of Figures.

9. Abbreviations.

10. Literature..

1. Duty

Identify all sensitive locations (be specific) on a world map where you think international business is rendered vulnerable following the terrorist attacks in the U.S.A. on 11.09.2001 and explain why. Similarly, identify which business and what value-addition activities are, in your opinion, likely to be affected by this developments-to whose benefit and whose detriment?

2. Introduction

The United States of America are the most powerful country in the world, on a political and economical view as well.

They are a kind of engine for the world’s business cycle. The question is: Is that engine after the terrorist attacks fallen off and are there any effects to the economic of other countries round the globe?

At the moment no one can say what the economic consequences following the terrorist attacks against the World Trade Center in New York on 11th September are or what will happen in the future with regard to international business. It depends on the military answer the U.S.A will give the terrorist: Will there be only a few of military operations or will everything end in a long war with the danger that other Islamic countries could be involved?

Uncertainty is a kind of poison for every business!

In this home assignment I want to show what, in my opinion, are the effects to international business. I try to identify those branches of business that could profit and, on the other hand, that could suffer. I also want to take a lock to the fiscal impact. Therefore I’ll make ‘a distinction between short-term impact, immediate effect and long-term consequences’¹.

3. The fiscal impact

3.1 The short-term impact

“Most analysts focus on the short-term impact of the attacks on New York's World Trade Center, which had a practical as well as symbolic significance in disrupting the world's principal financial market.”²

The reaction of all important stock exchanges round the world was a decline in stock market.

The trade at the New York Stocks Exchange was interrupted immediately after the attacks for four days.

3.2 The immediate effect

“The immediate effect -- closure followed by a sharp fall when the market reopened -- was comparable with an earthquake but not the outbreak of a world war or a full-scale financial panic. The 7 percent fall in the Dow Jones Industrial Average on Monday was much less than the falls of more than 20 percent caused by the outbreak of World War I or the panic of October 1987.”³

No question, the terrorist attacks were very bad and a tragedy but the world already has seen much more badly. Meanwhile the indices recovered.

3.3 The long-term consequences

“Much more serious are the likely long-term consequences. The attacks came at a time when the world economy was already slowing down (with growth in both the U.S. and the Eurozone down to an annualised 0.2 percent in the second quarter of 2001). Belated realism about the future profits of technology companies, rising oil prices and interest rates had already pushed the stock markets down by around 20 percent from their peaks early last year. They almost certainly have further to fall.

As asset prices fall, America's heavily indebted households will rein in their spending still further; they may even revert to saving. The effect will be to increase the squeeze on the profits of (also indebted) companies. A vicious deflationary circle could develop, as happened in Japan in the 1990s.

It's too early to speak of another Great Depression. Unlike in 1929-32, modern monetary and fiscal policies can do much to counter the slowdown. But the terrorists have dealt a blow to the sine qua non of economic growth: confidence. In a riskier world, it will not only be airlines that will suffer.”⁴

4. Harmful effects on branches

4.1 The tourism industry

“There have been plenty of statistics about the difficulties of the US travel industry following the hijackings and terrorist attacks …but they hardly convey the eeriness of the empty aircraft, deserted hotels and rows of unwanted vehicles in the car rental lots.”⁵

There are some examples to face the badly impact to the U.S. tourism industry:

‘An agent at the Alamo car rental desk at Hartsfield Atlanta International Airport said: “It’s awful. Usually we rent 800 to 900 cars a day. Now it’s down to 200.” At the Hyatt Regency St Louis the situation is similar. 75% of the rooms there are empty.

However, hoteliers believe that pick-up could come quickly. The biggest reason for the slowdown, they say, is cancellation of business meetings and conferences. Companies will reschedule later as soon business gets back to normal’⁶

In other parts of the world tourism industry is not so hit as America’s is. But there is a danger in the future: When the U.S. make war in an Islamic country it might be dangerous for tourists to travel to Egypt, Turkey, Israel or similar countries with an Islamic population or that are close to theatre of operation. This situation would be bad mostly for European tourism industry because main of tourists visiting these countries come from Europe.

4.2 Airlines

‘All airline manager in the U.S.A. say that turnover in air traffic will decline to 20% minimum. Nearly 70.000 employees already lost their jobs URL: http//www.salon.com/tech/feature/2001/09/19/war_economy/index.html in only one week.’⁷ ‘The current operating environment dictates the carriers to reduce their flying schedule significantly, which in turn requires a significant reduction in their staffing level.’⁸ ‘Outside the US, British Airways and Virgin Atlantic have announced cuts of 5,200 and 1,200 respectively.Figure1 Continental European carriers including KLM, Swissair and Alitalia are also expected to announce job losses. South African Airways yesterday announced bigger-than-expected losses and warned that high fuel prices 4.3 The oil market and the consequences of last week’s terrorist attacks would hurt future earnings.’⁹ ‘Cash receipts deficiencies of American airlines are up to 300 Million U.S.$ per day.’¹⁰

‘Swiss national airline Swissair may file for bankruptcy on Monday, as part of strategy to keep flying. Shares in Swissair, which have halved in value since the September 11 terror attacks on the U.S., and Crossair have been suspended until Tuesday evening, the Swiss stock exchange said. Swissair, Europe's fifth-largest carrier, has announced two rounds of job losses this year totalling 4,250 of its 72,000 strong workforce.’¹¹

“Hit by higher insurance premiums and lower demand, Korean Air Lines will begin reducing flights Thursday. Asiana Airlines also said it may cut its flights.”¹²

So round the world carriers expect extremely high losses caused by the terrorist attacks, not only American airlines. These worse expectations are reflected to the carrier’s performances at world’s stock exchanges.

But the question is allowed, if it’s only an excuse, in part at least, for cutting jobs that are superfluous anyhow? “Some union members have voiced concerns that airlines may have announced cuts to draw attention to their plight while lobbying for aid in Washington”¹³

4.3 The aircraft industry

The aircraft industry as well is badly hit by the cut down of capacities by the airlines. “Boeing, one of the largest civilian aerospace manufacturers, said this week it could cut it’s payroll by 30,000, and other industry suppliers such as General Electric’s engines business have said layoffs are inevitable.”

4.4 The oil market

“Monday's 13 percent decline was the largest daily price drop since January 17, 1991, when the United States and its allies began the air war against Iraq for its invasion of Kuwait.”¹⁴

“Last week's terrorist attacks on the US are more likely to lead to falling oil prices than the escalating prices experienced during the Gulf War, according to an analysis by the London-based Centre for Global Energy Studies.

…However, the CGES said on Monday the attacks posed a greater risk to the demand side of the oil balance than the supply side because of the expected adverse effect on the global economy.

…The market for aviation fuel was expected to be particularly badly hit, with demand forecast to fall by as much as 400,000 b/d over the winter due to a reduction in commercial air travel. This would only be partially offset by any increased US and allied military action.

The Organisation of Petroleum Exporting Countries, the cartel that includes many Middle Eastern oil producers, last week said it would seek to minimise the impact of any supply interruptions by pumping more oil into the market.”¹⁵

‘OPEC is charging one barrel (= 159 litres) as it follows: It contains different brands of oil from Indonesia, Nigeria, Saudi Arabia, United Arabian Emirates, Venezuela and Mexico.’¹⁶

So not only European or American multinational oil companies are hit by the attacks, economics of oil exporting countries from almost all continents too. Some of them will deal with but others are not so well off like Nigeria, Venezuela and Mexico.

4.5 Insurance

‘Munich Re and Swiss Re, the world's biggest reinsures, on Thursday doubled their estimated losses from last week's terrorist attacks in the US as analysts forecast the total industry bill could top $30bn.The insurance industry initially saw this as a $15bn-loss event, but clearly it is closer to $30bn. However, analysts said the two largest reinsures were strongly capitalised and stood to benefit from a flight to quality within the industry. The markets are disappointed, but this doesn't jeopardise the big players or threaten the stability of the industry.’¹⁷

4.6 The Entertainment Industry

American TV-companies lost every day after the catastrophe, by renunciation of advertisement, about DM320m¹⁸. That’s almost one per cent of average annual publicity budget.

The film industry too is afraid of losses because the start of many expensive movies they had to put off.

4.7 Other branches

In the near future the companies have to deal with uncertainty in a high degree. Many costumers replace investments in new consumer goods because they are afraid of unemployment or they already lost their jobs. For that reason companies replace their investments and/or cut jobs. The high tech industry is just an example.

But in that case too, the question is allowed, if it’s only an excuse for cutting jobs that are superfluous anyhow?

5. Business that benefit

5.1 The defence industry

“The stock market's instinctive reaction to the prospect of conflict has been to push up the prices of most defence manufacturers' shares.”¹⁹

“There are signs the Pentagon has already put companies on notice to prepare production lines for faster-rate output of some items, though no manufacturer will comment on this, given the need for secrecy.

However, opinions are divided about the longer-term impact for the defence industry. Stock market analysts tend to have doubts, while some defence experts see the atrocities of last week as a watershed for the US approach to defence and therefore for the whole military establishment, including industry.

Defence stocks have probably benefited as a "haven" in a falling market because of their non-cyclical nature. They had in any case been slowly recovering from lows suffered as the industry struggled to cope with crunching rationalisation during the 1990s.

All defence companies, however, have exposure to the civil economy, Boeing's share price fall reflecting this in particular.”²⁰

6. Conclusions

Business becomes more and more international. An evidence for that statement is what followed as a consequence of the terrorist attacks against the U.S.A..

The U.S.A. are the world’s leading country, in a political and an economical way. So the terrorist attacks against the World Trade Center and the Pentagon had a deep impact to the world’s economy.

Many branches and companies round the world had to deal with the effects immediately after the attacks, e.g. airlines and insurance- companies.

Other fields of business, so the aircraft industry will feel the

consequences later because of the decreasing orders for new airplanes by the carriers.

URL: http://www.news.ft.com/ft/gx.c…etemplate=IXL8L4VRBC&tagid=ZZZ8AFN2YZB

Many people still lost their jobs or are afraid of this. So they postpone the investment into new consumer-goods what is disadvantageous for many branches like the car industry, the entertainment industry, the consumerelectronics industry, etc..

And, at least, there is still the uncertainty about what follows. Sure, there will be an “answer” by the Americans but no one knows how that will look like and what might be the consequences of that reaction. Uncertainty is poison for company

In my opinion there is only the defence industry that could benefit from the attacks because the U.S.A. declared war against international terrorism and for a war, of course, you will need equipment.

7. Figures

Abbildung in dieser Leseprobe nicht enthalten

Figure 1

8. Table of Figures

Figure 1:

From: Edgecliffe-Johnson, Andrew,

FT.com - Special Reports / Assault on America, 2001-09-21 URL: http://specials.ft.com/aoa/FT3G48DCWRC.html

9. Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

10. Literature

salon.com Prof. Niall Ferguson, The war economy, by Katherine Mieszkowski, 2001-09-19 URL: http//www.salon.com/tech/feature/2001/09/19/war_economy/index.html

FT.com Richard Tomkins, America’s tourism industry running on empty, 2001-09-24 URL: http//www.ft.com/ft/gx.c…5L8ZRC&live=true&query=terrorist+attack

Edgecliffe-Johnson, Andrew, FT.com - Special Reports / Assault on America, 2001-09-02 URL: http://specials.ft.com/aoa/FT3G48DCWRC.html

Nicoll, Alexander, Opinions divided on attack's effect on defence industry, 2001-09-20 URL: http://www.news.ft.com/ft/gx.c…etemplate=IXL8L4VRBC&tagid=ZZZ8AFN2YZB

Cameron, Doug/Major, Tony, Reinsurers double loss estimates from attacks, 2001-09-21 URL: http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3907R7URC&live

Buchan, David, Cartel seeks price of $25 a barrel, FT.com, 2001-09-27 URL: http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3F11BG4SC&live=true

From: Global insurers estimated losses in relation to US terrorist attacks, FT.com, 24-09-01 URL: http://news.ft.com/ft/gx…etemplate=IKL4VRRBC&tagid=FTDNJ1T9BPC

SPIEGEL- ONLINE

Carsten Matthäus, Terror-Kriese: Zehntausende verlieren ihre Jobs, 2001-09-20 URL:http//www.spiegel.de/ wirtschaft/01518,158373,00.html

Fleischhauer, Jan / Reiermann, Christian, Weltwirtschaft: Angst vor dem Absturz, 2001-09-20 URL: http//www.spiegel.de/druckversion/0,1588,158896,00.html

Fom: Entlassungswelle: Hightechindustrie, SPIEGEL-ONLINE, 20-09-2001 URL: http://www.spiegel.de/druckversion/o,1588,158380,00.html

CNN.com

Asian airlines still flying, CNN.com, 2001-09-25, URL:http://cnnfn.cnn.com/2001/09/25/asia/wires/airlines_asia_ap/

Oil prices rebound, CNN.com,2001-09-25 URL: http://cnnfn.cnn.com/2001/09/25/markets/wires/oil_re/index.htm

Swissair considers bankruptcy, CNN.com, 2001-10-01, URL: http://europe.cnn.com/2001/BUSINESS/10/01/swissair/

Handelsblatt.com

Ölpreis leicht erholt, Handelsblatt.com, 2001-09-26 URL: www.handelsblatt.co...50/docid/462932/SH/0depot/0/index.html

Chart Deutsche Lufthans AG, DAX, Handelsblatt.com, 25-09-2001-10-04 URL: http://www.handelsblatt.co...1=&c2p2=&c2p3=&3cp1=&c3p2=&c3p3=&debug=

Quicken.com

Chart CONTINENTAL AIRLINES INC CL B, Quicken.com, 29-09-01 URL: http://www.quicken.com/investments/charts/?symbol=CAL&print=1

Chart Boeing CO, Quicken.com, 29-09-01 URL:

http://www.quicken.com/investments/char…=&dji=&sp500=&nasdaq=&symbol=BA&print =1

Chart EXXON MOBIL CORP, Quicken.com, 29-09-01 URL: http://www.quicken.com/investments/charts/?symbol=XOM&print=1

Chart: DISNEY WALT HOLDING CO, Quicken.com, 29-09-01 URL: http://www.quicken.com/investments/charts/?symbol=DIS&print=1

Chart NEWS CORP LTD ADR NEW, Quicken.com, 29-09-01 URL: http://www.quicken.com/investments/charts/?symbol=NWS&print=1

Chart NORTHROP GRUMMAN CORP, Quicken.com, 29-09-01 URL: http://www.quicken.com/investments/charts/?symbol=NOC&print=1

Chart LOCKHEED MARTIN CORP, Quicken.com, 29-09-01 URL: http://www.quicken.com/investments/charts/?symbol=LMT&print=1

[...]

---

¹ Prof. Niall Ferguson, The war economy, by Katherine Mieszkowski, 2001-09-19 URL: http//www.salon.com/tech/feature/2001/09/19/war_economy/index.html

² Prof. Niall Ferguson, The war economy, by Katherine Mieszkowski, URL: http//www.salon.com/tech/feature/2001/09/19/war_economy/index.html, 2001-09-19

³ Prof. Niall Ferguson, The war economy, by Katherine Mieszkowski, URL: http//www.salon.com/tech/feature/2001/09/19/war_economy/index.html, 2001-09-19

⁴ Prof. Niall Ferguson, The war economy, by Katherine Mieszkowski, 2001-09-25

⁵ Richard Tomkins, America’s tourism industry running on empty, 2001-09-24 URL: http//www.ft.com/ft/gx.c…5L8ZRC&live=true&query=terrorist+attack

⁶ Richard Tomkins, America’s tourism industry running on empty, 2001-09-24 URL: http//www.ft.com/ft/gx.c…5L8ZRC&live=true&query=terrorist+attack

⁷ Carsten Matthäus, Terror-Kriese: Zehntausende verlieren ihre Jobs, 2001-09-20 URL:http//www.spiegel.de/ wirtschaft/01518,158373,00.html

⁸ Edgecliffe-Johnson, Andrew, FT.com - Special Reports / Assault on America, 2001-09-21 URL: http://specials.ft.com/aoa/FT3G48DCWRC.html

⁹ Edgecliffe-Johnson, Andrew, FT.com - Special Reports / Assault on America, 2001-09-21 URL: wysiwyg//64/http://specials.ft.com/aoa/FT3G48DCWRC.html

¹⁰ Fleischhauer, Jan / Reiermann, Christian, Weltwirtschaft: Angst vor dem Absturz, URL: http//www.spiegel.de/druckversion/0,1588,158896,00.html ¹¹ Swissair considers bankruptcy, CNN.com, 2001-10-01, URL: http://europe.cnn.com/2001/BUSINESS/10/01/swissair/ ¹² Asian airlines still flying, CNN.com, 2001-09-25, URL: http://cnnfn.cnn.com/2001/09/25/asia/wires/airlines_asia_ap/,

¹³ Edgecliffe-Johnson, Andrew, FT.com - Special Reports / Assault on America, 2001-09-21 URL: wysiwyg//64/http://specials.ft.com/aoa/FT3G48DCWRC.html

¹⁴ Oil prices rebound, URL: http://cnnfn.cnn.com/2001/09/25/markets/wires/oil_re/index.htm, 2001-09-25

¹⁵ Buchan, David, Cartel seeks price of $25 a barrel, CNN.com URL: http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3F11BG4SC&live=true, 2001-09-27

¹⁶ Ölpreis leicht erholt, Handelsblatt.com, 2001-09-26 URL: www.handelsblatt.co...50/docid/462932/SH/0depot/0/index.html

¹⁷ Cameron, Doug/Major, Tony, Reinsurers double loss estimates from attacks, 2001-09-21, London /Frankfurt URL: http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3907R7URC&live,

¹⁸ Carsten Matthäus, Terror-Kriese: Zehntausende verlieren ihre Jobs, 2001-09-20 URL:http//www.spiegel.de/ wirtschaft/01518,158373,00.html

¹⁹ Nicoll, Alexander, Opinions divided on attack's effect on defence industry, 2001-09-20

²⁰ Nicoll, Alexander, Opinions divided on attack's effect on defence industry, 2001-09-20 URL: http://www.news.ft.com/ft/gx.c…etemplate=IXL8L4VRBC&tagid=ZZZ8AFN2YZB