Future of global economy hangs in the balance

Despite the best assurances of policy makers and a flood of cheap money from central banks, analysts fear this week's terror …

Despite the best assurances of policy makers and a flood of cheap money from central banks, analysts fear this week's terror attacks in the United States will take a heavy toll on the global economy.

Financial figures from US Treasury Secretary Mr Paul O'Neill to Bank of England Governor Sir Eddie George have tried their best to talk up the prospects for a speedy recovery.

News broke today that the Japanese government and central bank were planning a major policy announcement next week aimed at reassuring consumers and markets alike.

But reality is proving grimmer, with analysts staggered by a sharp fall in the University of Michigan's US consumer confidence index to 83.6 in September from 91.5 in August.

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And this survey was taken before Tuesday's suicide airliner attacks on the World Trade Center in New York and on the Pentagon in Washington killed thousands.

"The consumer was already beginning to labour under the pressures of depleted saving, record debt burdens, negative wealth effects and rising unemployment, Morgan Stanley's chief economist," Mr Stephen Roach, said in an emotional note to clients.

"This shock, in conjunction with a very ominous set of fundamentals, is a lethal combination for the American consumer," concluded Mr Roach.

"This tragedy could well be the tipping point to the recession of 2001."

As a result he saw an even greater chance of sharper global slowdown, lowering his call for world growth this year to just 1.5 per cent from an already anaemic 2 per cent.