UNITED NATIONS, OCT 11: Last month attacks on the United States would siphon $350 billion out of the world’s economy this year, impacting the developing countries in South East Asia the hardest, the United Nations said on Wednesday.

A survey of its global outlook for 2001 released by UN Economic and Social Affairs department said that the attacks exacerbated an already gloomy outlook and will reverberate throughout the world for months to come.

The attacks, which came as the world economy was already weakening, will trim world growth this year by a full percentage point, to 1.4 per cent from a previously forecast of 2.4 per cent, said Ian Kinniburg, Director of UN Development of Policy Analysis while introducing the report.

That means a $350 billion shortfall, compared to earlier forecasts, for the $35 trillion world economy, he said.

Kinniburg said the world’s poor nations would inevitably suffer the most from the slowdown, as wealthy nations are always in a better position to cope with hard times.

“These hiccups have profound effects on growth in the developing countries,” he said.

He also attributed the sharply changed outlook to the attacks’ devastating blow to the financial sector, a general disruption in economic activity, declining consumer and business confidence and the cost of new security measures, which are costly yet contribute nothing to productivity. The growth of world gross product is expected to be only 1.4 per cent for 2001, with only a partial recovery to 2 per cent next year.

“The world economy was already in a state of slowdown,” said Kinniburgh. He said the events of September 11 “came at a very unfortunate time.” Acknowledging that the full economic repercussions of the September 11 attacks remain unknown, the report assesses the possible consequences by examining a range of factors.

While the cost of lives lost cannot be measured, the cost of the physical destruction in the United States is estimated to be around $40 billion. “If the current military campaign escalates, destruction will likely increase and more economies will be involved,” notes the report.

The attacks have also caused a disruption of economic activity in a number of industries, notably airlines, insurance, travel and finance, and “the damage is spilling over to more and more sectors, such as manufacturing, retailing and technology.

“Even more damaging than the initial destruction and subsequent disruption is the erosion of confidence caused by the attacks, according to the report.

“The direct economic consequence of eroding confidence will be heightened risk aversion by business investors and a withholding of household spending by consumers,” it states. “The nervousness and apprehension of investors and consumers may lead not only to depressed demand in the short-to-medium run, but also to reduced expansion of supply capacity and lower potential long-term growth.”

The UN report anticipates a worse than previously expected downturn in the United States, with the attacks expected to cause “an absolute decline in gross domestic product in the third and fourth quarter.”

The US economy, the world’s largest, will now grow just 1 per cent this year, compared with an earlier forecast of 1.8 per cent growth, said the report, based on a survey of analysts around the world.

While the US economy grew in the first half of 2001, it will shrink in the second half, it said.

The European Union economies will now grow 1.8 per cent (compared with a 2.7 per cent earlier forecast) while Japan’s economy will shrink 0.5 per cent (compared with an earlier prediction of 0.7 per cent growth), according to the report.

The trade-driven developing economies of Eastern and Southern Asia are now seen growing at a 1.7 per cent rate this year, down from 4.1 per cent. African nations will experience 3 per cent growth (compared with an earlier forecast of 4.3 per cent growth) and West Asia will grow 1.9 per cent this year, down from an earlier forecast of 2.6 per cent.

China’s economy, by contrast, was seen as untouched by the attacks, growing at the same 7.5 per cent rate as forecast prior to Sept 11.