- The Washington Times - Thursday, September 27, 2001

A recession in the United States will hold growth down in the rest of the world and likely cause the first worldwide recession in decades, the International Monetary Fund said yesterday.
A global economic forecast prepared even before the Sept. 11 terrorist strikes on New York and Washington showed the world was on the verge of recession, with growth of only 2.6 percent this year.
Growth under 2.5 percent is considered recessionary on a global scale because it is not fast enough to prevent widespread rises in unemployment in many less-developed countries with rapidly increasing populations.
"The implications of the terrorist attack go well beyond the economic sphere, but it clearly took place at a difficult time for the global economy," said Kenneth Rogoff, the IMF's chief economist, adding that the first synchronized global downturn since the early 1980s is "a significant danger."
Mr. Rogoff, a former Harvard economics professor who recently joined the IMF, at one point in a press briefing yesterday called a recession "a done deal" in the United States.
He later withdrew that statement, saying the exact impact of the attacks has yet to be measured. The IMF, like other official forecasters, usually is upbeat in describing the prospects for the world's largest economy to avoid undermining confidence.
"There is no doubt the attack is having a negative effect now in many regions of the globe," Mr. Rogoff said, noting that major stock indexes have fallen by 8 percent to 12 percent in the United States and Europe and by 5 percent in Japan. The financial blow in developing countries in Latin America and Asia has been even greater.
Mr. Rogoff compared the attacks to a huge natural disaster like the Kobe earthquake that hit Japan in 1995, leveling parts of a major port city. The direct impact on American industry primarily airlines, insurance and travel has been less than the Kobe quake, he said, but the indirect impact on consumer and business confidence and on risk aversion among investors is much greater.
Mr. Rogoff held out hope for a rapid recovery in the United States and the rest of the world next year. The quick-fire moves by the Federal Reserve and other major central banks after the attacks to cut interest rates and pump money into wounded financial systems averted an even worse financial catastrophe, he said.
Also aiding global recovery is the recent fall in oil prices, which plummeted to just above $20 a barrel in world markets this week on the prospects of a worldwide recession causing a drop in energy consumption. Some oil analysts say the price of oil could drop even further to around $15 a barrel. Economists say such oil-price declines are much like tax cuts that stimulate the economy.
The $55 billion in rescue assistance Congress approved for the airline industry and attack victims also will help to limit the damage, Mr. Rogoff said. But Congress should be cautious in approving any further tax cuts and spending boosts to stimulate the economy, given how much already has been done.
Fiscal stimulus is "a very blunt instrument for trying to deal with a recession," he said. "Frantic, ill-focused actions to stimulate the economy risk being counterproductive."
Federal Reserve Chairman Alan Greenspan gave legislators the same advice, although in a private session with senators on Tuesday he said any stimulus approved by Congress should be at least $100 billion to have a noticeable impact on the economy. His $100 billion figure included the $45 billion of direct spending already approved by Congress, aides said.
Mr. Greenspan also suggested that Congress use any stimulus package to help remedy the technology and investment spending bust that has held back the economy for a year, for example by enacting investment tax incentives like accelerated depreciation for investments and write-offs for spending on software.
While Mr. Greenspan has been a longtime advocate of lower capital-gains taxes, he did not recommend that they be included in any bipartisan stimulus package because of widespread disagreement on whether they would provide short-term help for the economy.

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