Economy, markets uncertain after terrorist attacks in U.S.

International bourses sank immediately on news of the attacks, with some halting trade, while oil and gold prices spiked.
By : Jeffrey Sparshott

   Terrorist attacks in New York City and just outside Washington D.C. last week shattered lives and property while sending shockwaves through financial markets, political circles and communities around the world.

   The commercial jets that crashed into the World Trade Center towers and the Pentagon Sept. 11 killed thousands of people and demolished a part of the world’s financial capital, forcing U.S. markets to close for as long as four days.

   International bourses sank immediately on news of the attacks, with some halting trade, while oil and gold prices spiked. The Warsaw Stock Exchange’s blue chip WIG20 index fell 33 points when the news broke Tuesday and ended the day down 2.8%, the FTSE Eurotop 300, a pan-European blue chip index, shed 6.33%, Tokyo’s main market index fell by 6.6% and other Asian markets fell even further.

   By week’s end, global markets calmed slightly even as sorrow and anger spread. Flags flew at half-mast across the country while Poles and expatriates laid hundreds of candles and bouquets of flowers in front of the U.S. Embassy in Warsaw and the U.S. Consulate General in Kraków, many with notes of sympathy or solidarity attached. Polish officials quickly condemned the attack and throughout Europe leaders offered support, including a pledge by the NATO to consider the terrorist act an attack against the entire alliance.

   As the awful toll in lives became more apparent, the long-term impact on the economy remained uncertain. Insurance estimates for the disaster ranged into the billions of dollars, but economists were hesitant to speculate on the overall effect to the U.S. and world economies.

   The U.S. Federal Reserve and the European Central Bank (ECB) moved to ensure that financial markets functioned, injected funds into the financial system and tried to reassure the markets.

   “The fundamental strength and resilience of the U.S. economic system will not be impaired by recent events,” the ECB said in a statement.

   Despite these assurances, economic and political fallout remained unknown. U.S. financial markets began limited operations Thursday, following a two-day shutdown, when bond trading resumed. But the world’s two biggest stock markets, the New York Stock Exchange and the Nasdaq, were closed last week. Officials announced that trading would start again at 9:30 a.m. EDT Monday.

   “We are waiting to see what happens; we don’t know how the market will open,” said Katarzyna Zajdel-Kurowska, head of treasury research at Bank Handlowy.

   The volatile WSE steadied by Thursday but still lost ground, with the blue chip WIG20 falling 6.5% to 1,113.26, the all-share WIG slipping 4.5% to 12,598.49 and the TechWIG diving 9.9% to 582.46 for the five-day period ending Thursday. The exchange, which halted trading for three minutes Friday to show compassion for victims of the attack, tacked on further losses that day.

   Volume was light at zł. 861 million ($205 million) for the week as investors watched the U.S. situation unfold. International investors remained wary of emerging markets in the wake of the attacks. Telekomunikacja Polska (TPSA), the WSE’s biggest and heaviest-traded stock, was affected by the trend, dropping 5.5% the day of the attack and losing 14.7% for the week to close at zł. 11.60 per share.

   Given political and economic uncertainty, analysts were cautious.

   “I would say that at this stage it is too early to say anything about the Polish economy or the U.S. economy,” Zajdel-Kurowska said. Even before the attacks, economic signals showed a slowdown or recession approaching across the Atlantic and Poland’s economy was already weak. Other factors, such as rising oil prices, could also influence the economy by fueling inflation, she said.

   Plus, Poland still has to worry about an as-yet-uncontrolled budget crisis and high interest rates that are keeping inflation in check but also limiting economic growth. And while Polish trade with the United States is limited, the European Union accepts more than 70% of Poland’s exports, the EU has not been immune to a U.S. and worldwide economic slowdown.

   “In the best of cases … the terrible events of Sept. 11, 2001 in New York will probably exacerbate the world recession only temporarily and to a limited extent,” said Norbert Walter, chief economist for Deutsche Bank. “If the situation escalates in political/military terms, the effects will be virtually impossible to predict.”

   The political and military situation itself was difficult to predict, with the U.S. seeking vengeance for the attacks and beginning to build a coalition with its allies.

   “Justice demands that those who helped or harbored the terrorists be punished – and punished severely,” said President George W. Bush last week. “The enormity of their evil demands it. We will use all the resources of the United States and our cooperating friends and allies to pursue those responsible for this evil, until justice is done.”

   NATO officials last week pledged to invoke Article 5 of the Washington Treaty, which stipulates that an armed attack against one member shall be considered as an attack against all. Poland joined NATO in 1999. A special government committee met last week in Warsaw to discuss the attacks and will convene again Tuesday to consider the consequences for Poland of using Article 5.

   Poland and other EU-candidate countries also joined the European Council in expressing the “profound solidarity of the European Union with the American people,” condemning the terrorist attacks in the United States and holding official days of mourning and moments of silence.

   “I express the deepest compassion to their families, and sympathize with the sufferers,” said Prime Minister Jerzy Buzek. “We all have to do everything to find the perpetrators, punish them ruthlessly and not let such barbarity ever happen again.”

   In the run-up to the Sept. 23 parliamentary elections, political parties toned down or cancelled many events.

   “It would be difficult to carry out a joyous electoral campaign at such a time,” Michał Tober, spokesman for the opposition Democratic Left Alliance (SLD), told Reuters.

   All Poland-based flights to the United States and Canada were halted when North American airspace was shut down, affecting about 3,000 passengers scheduled for between four and five flights per day from Warsaw and Kraków, according to a LOT Polish Airlines spokesman. Friday afternoon a flight was ready for takeoff to Toronto but traffic to the U.S. remained grounded pending notification from the U.S. Federal Aviation Administration.

   Limited air travel between the United States and Europe resumed Friday, Reuters reported.

   The U.S. Embassy in Warsaw and the Consulate General in Kraków were under heavier-than-normal guard last week, and offices closed temporarily following the attacks. By week’s end diplomats were back in their offices.

   The embassy’s press office said officials are giving guidance to U.S. citizens but would not specify any particular measures or repeat any warnings for citizens living in the country.