Mumbai: The American economic outlook and therefore the world economic outlook post-Black Tuesday is bleak, to say the least. Not that it was going great guns before that, but there were hopes of revival at least by the end of the first quarter of the calendar year 2002. But the hijacked planes slammed into the World Trade Center on 11 September and dramatically changed all that.

While exact assessments of the damage are yet to be made, President George W Bush had assessed it at around $20 billion. Others estimates vary anything between $25 billion to $40 billion. What are the assessments about the world economy?

Credit rating firm Fitch said on 21 September that global economy is at its weakest in two decades and the world GDP is expected to grow just about 1.25 per cent in calendar 2001. Fitch points out that the global economic activity is slowing sharply in all the three major economic blocks and expects that world trade growth to fall to around 2 per cent in calendar 2001 in comparison to 13 per cent in the previous calendar. It states: "If policy stimuli fail to generate an early US recovery, it is hard to see an alternate source of global growth emerging in 2002."

In its half-yearly review on the emerging markets, Fitch has stated: "Emerging markets are facing worsening trade balances and, therefore, increased external financing needs as a result of a sharp fall in the world trade growth. At the same time, a climate of rising risk aversion threatens to limit their access to private international capital markets." Its estimates of total fund requirement by the emerging markets in calendar 2002 are placed at $260 billion in comparison to $180 billion in calendar 2000.

US Federal chief Allan Greenspan is more circumspect is his assessment. He reiterates that immediate damage to the economy is negative, but the long-term damage remains uncertain. Speaking to the Senate Banking Committee, he has reasoned that post-attack, much activity has ground to a halt largely due to structural damage inflicted on financial systems. "Payment systems among financial institutions had been disrupted directly by the attack on New Yorks financial district, and manufacturers and distributors supply chains had been convulsed by the closure of US air transport system. The shock is most evident in consumer markets, where many potential purchasers stayed riveted to their televisions and away from shopping malls."

Greenspan may well have a point because, according to reports, credit-card purchases are reportedly down 20 per cent in comparison to the same period last year. But Greenspan feels the American economy is resilient and better equipped than ever before to absorb such shocks. He cites the example of the American financial markets, which he says are beginning to return to normal. He is doing all that is possible to revive the economy, already having reduced interest rates by 500 basis points to 3 per cent on 17 September and is likely to bring them down further when the next open market committee takes place on 2 October.

Notwithstanding Greenspans optimism, there are many who feel the US is slowly but surely trotting into a recession. Their assessment stems largely from the worsening unemployment situation. The second quarter ended June 2001 saw a 1.5-per cent fall in the numbers of hours worked. In the first two months of the third quarter, the figure declined sharply to 2.6 per cent and experts feel the drop could be vicious in September at about 3 per cent, given 70,000 layoffs have been announced by the airline industry alone since 11 September.

And what about the loss in business confidence? In the Gulf War of 1991, Business Confidence Index fell by 47 points between August 1990, when Saddam Hussain invaded Kuwait, and February 1991, when the war ended. There are all the chances the same will happen again this time around in case a full-fledged war does break out.

What does it bode for India? The outlook is bad, but not very bad, as only about 10 per cent of our economy is dependent on exports. But looking at the importance of the American economy, our exports, foreign direct investment as well as institutional inflows are likely to remain under pressure. This bodes ill for our stock markets.

Our biggest worry is oil prices, which shot up to $30 immediately after the attack. Though they subsided later falling back to the $28-level after OPEC ensured that it would maintain an uninterrupted supply of cruse oil, India will have to remain on its toes. One must not forget that with every $1 rise in crude price, the countrys import bill is likely to increase by about Rs 500 crore. Our petroleum minister has ensured that India has enough reserves of crude for the next two months and need not worry about the increase in international price in the immediate future.

The concern, however, remains in the long term. A lot will depend up on for how long the war will go on and at what financial cost. Prospects could also become dimmer for the information technology sector, for which the US continues to be a major market. Rates have reportedly already declined to an average of $10 per man-hour. Aviation, hotels and tourism sectors will also come under a cloud. Rupee is also likely to remain under pressure.

The bright part is that India can do wonders if it implements internal reforms. Then a lot of negative impact of external circumstances can be negated.

But will our politicians rise to the occasion? Well, as the old clich goes, only time can tell.