CBSN

Terror Attacks Stagger World Economy

President George W. Bush, left, answers questions from the media as White House advisor Karl Rove looks on at the end of a meeting with congressional members July 18, 2006, in the Cabinet Room of the White House in Washington.
GETTY IMAGES/Alex Wong
The economic fallout from the Sept. 11 attacks dealt a brutal blow to economic prospects in almost every corner of the world, causing the most universal slowdown in at least two decades, the International Monetary Fund said on Tuesday.

The 183-nation lending agency released an updated "World Economic Outlook" to take into account the impact of the attacks.

The new forecast sharply lowered growth estimates for the world and the U.S. economy below its October report, which had been prepared in advance of Sept. 11.

For the global economy, the IMF predicted growth would slow to 2.4 percent next year, same as this year.

Click Here for Complete CoverageThat would be down from a torrid 4.7 percent pace in 2000 and would be the weakest performance since a 2.3 percent increase in the world economy in 1993. The IMF said next year would probably see the most marked simultaneous slowdown among all regions of the world in at least two decades.

It blamed similar shocks hitting many regions, including a big jump in oil prices in 2000 and the bursting of the bubble in the price of many high-tech stocks.

"The tragic events of Sept. 11 exacerbated an already very difficult situation in the global economy," the IMF said. "As a result, prospects for global recovery have been set back significantly."

The forecast for 2.4 percent growth for both this year and 2002 marked downward revisions from the IMF's October forecast of 2.6 percent growth this year and 3.5 percent growth in 2002.

For the United States, the IMF projected the gross domestic product would increase by just 1.1 percent this year and an even more meager 0.8 percent next year. In October, the IMF had put U.S. growth at 1.3 percent this year and 2.2 percent next year.

The National Bureau of Economic Research declared last month that the United States' first recession in a decade had begun in March. Many private forecasters say the downturn will be relatively mild and will be over by March.

The IMF also expressed optimism that a U.S. recovery will begin next year, propelled by aggressive credit easing by the Federal Reserve and additional economic stimulus in the form of tax cuts and increased government spending.

But the IMF economists cautioned there are significant downside risks that could prevent even its scaled-back growth forecast from being realized.

"While there are good reasons to expect a recovery to get under way in 2002, the outlook remains highly uncertain and there is a significant possibility of a worse outcome," the IMF said.

Among the threats to its forecast, the IMF cited the possibility that consumer confidence will return more slowly in the United States because of lingering fears of new terrorist attacks.

The IMF's updated economic projections, while sharply lower than the official October forecastcame close to preliminary numbers previewed last month by IMF Managing Director Horst Koehler.

The IMF forecast that the Japanese economy, the world's second-largest, would shrink by 0.4 percent this year and 1.0 percent next year.

For the 15-nation European Union, the IMF forecast growth of 1.7 percent this year and 1.3 percent next year. Germany, the biggest economy in Europe, was projected to grow by just 0.5 percent this year and 0.7 percent next year.

For developing nations, the IMF projected growth of 4.0 percent this year and 4.4 percent next year, led by strong growth of 7.3 percent in China this year and 6.8 percent next year.

© MMI, CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press and Reuters Limited contributed to this report