Impact of US Attacks on Markets and Industry
September 20, 2001
The initial instability of various economic markets levelled quickly, displaying an unseen resilience to the acts of terrorism. The long-term impact will be largely dependent on policy makers' reactions and also on the response of the US military.
It is anticipated that stocks in travel-related areas will remain depressed in the immediate future as consumers and businesses become wary of international travel. One of the biggest concerns however, is the slump in consumer confidence.
Wall Street and the New York Stock Exchange open up their doors for business as usual on Monday, September 11. After being closed for four days following the attack on the World Trade Center, the American financial markets are braced for turbulent trading.
Economists have been quoted as saying that the aviation sector will suffer the most. Airlines, which were forced to suspend flights until mid-day Wednesday, face millions of dollars of refunds as do courier and air-freight carriers. Over and above the damage to and the loss of aircraft as well as lost revenue, it faces a double drawback in the immediate future with reduced air travel and costs associated with the prospect of increased oil prices. This will also effect the tourism industry globally.
Airlines were heavily sold after the US grounded all air traffic. Both the German carrier Lufthansa and Air France dropped in share price by appriximately ten percent. With this dive in international travel, an increase in spending is expected on communication technology, both hardware and relevant software.
In a further sign of the economic damage the attacks are creating for the airline industry, commercial aircraft manufacturer Boeing announced Tuesday it would cut 30,000 employees. American Airlines, which lost two jets in the hijackings, became the latest major carrier to announce massive layoffs.
It will cut 20,000 positions, roughly 20 percent of its entire workforce. Analysts predict that European airlines face an approximate 20 percent reduction in business as a result of a loss of consumer confidence and schedule reductions for normally lucrative Transatlantic routes.
Carolyn Gorman, vice-president of the Insurance Information Institute in Washington, said that the attacks tallied up to the most expensive man-made disaster ever. The most costly to date was believed to have been the the Piper Alpha oil platform blast, off the British coast in 1998 which amounted to $3 billion.Damage is estimated at $25-30 billion with costs to insurers constituting $15 billion. The largest insurance claim ever, will be carried by insurers worldwide, resulting in a global sharing of loss. However, some senior insurance authorities believe that the US government will aid them in compensating victims of the terrorist attacks.
Lloyd's of London, the world's largest insurer is facing claims of up to $300 million. Munich Re, the world's largest re-insurer, has said that its costs will be around €1billion but its financial stability is guaranteed despite it severely hurting profits. Zurich Financial Services believes that it will loose in the region of $400 million.
The owners of the World Trade Centre had only insured one of its landmark Twin Towers as the possibility of the loss of both structures was seen to be so remote that cover was not taken out. Replacement value of the towers alone is estimated to be a little more than $1.2 billion.
Insurance companies could be forced to pay in excess of $1 billion for aircraft damage, $3 billion for claims over loss of business and $2 billion for claims involving the loss of life. City Bank claims that insurers could very well face a further $3 billion in payouts for legal cases involving relatives of those lost in the disaster.
Oil, which had also made major gains on fears of worsening conflict in the Middle East, steadied after the Secretary General of the Organization of Petroleum Expoorrrting Countries commented that the organization was ready to take necessary measures to stop world oil prices spiking. The threat on the oil market seems a lot more stable in comparison to previous crises. Deutsche Bank estimated that the suspension of US commercial air traffic would cut US oil demand by about 1.8 million barrels per day.
Higher oil prices will have a ripple affect and sectors such as chemicals and retail are expected to suffer. The defense sector is expected to do well as spending by various governments increases. The oil-and-gas exploration sector is expected to flourish. Food, agriculture, tobacco and pharmaceuticals are also all expected to well relative to the markets.
Analysts are also expecting Internet and technology related sectors to benefit from the movement from a centralised floor-trading model like the New York Stock Exchange to a decentralised, electronic model.
Markets cringed after the attacks. And many economists fear that the attacks could push the US ecenomy into a recession