The Economic Impact of the Attack on the World Trade Center and the Pentagon
The effects of the attacks on the World Trade Center and Pentagon are rippling throughout the world, by sector, by region, and by market. Bond markets, inside and outside the U.S., already jittery from a deceleration in worldwide economic activity, are struggling to find direction in the aftermath of the attack. There now seems little doubt that the U.S. and global economies will slip into recession. The aerospace, insurance and banking industries, directly connected with the attack, will suffer the most.
The airline sector had already been suffering a slowdown as a result of lower economic growth and cutbacks in business travel. Then, at the moment the first plane hit the first tower, the U.S. airline industry was dealt an even more severe blow. In the ten days that followed, nine U.S. airlines were downgraded or had their ratings put on credit watch with negative implications. Airports and aerospace also felt the credit impact. In New York, the Port Authority of New York and New Jersey, housed in the World Trade Center, was placed on credit watch with negative implications, and, in the days that followed, every North American airport and airport-related special facility and 13 commercial aerospace companies--airplane manufacturers; engine producers; suppliers of aircraft systems, components, and materials; and vendors providing aviation support were put on credit watch with negative implications. The effect of the attack on the World Trade Center, due to diminished air travel, goes further in affecting the hotel industry and tourism.
Now, as the death toll rises and as property damage is beginning to be assessed, it seems quite likely that this catastrophe will be insurers' largest-ever insured loss. Insurance analysts have said that, once losses exceeded $15 billion, it would expect to see a significant impact on the balance sheets of individual insurers. So far, estimated net aggregate insured losses, from 55 leading insurers and reinsurers, are $19.2 billion. This figure is expected to continue rising. Rob Jones, a director in Standard & Poor's Financial Services group in London, has said that losses would have to exceed $50 billion before the entire industry were in trouble, and it is...