World faces war, threat of recession

By GEOFF CUMMING and AGENCIES

One week on from the frightening attacks on the United States that claimed more than 5000 lives, the world is facing up to a dangerous new era, shadowed by the threat of war and a possible global recession.

Last night, one of Afghanistan's hardline Taleban rulers said they were ready for a holy war, or jihad, against America.

"I would like to tell my people that our jihad will be formally resuming against the Americans," the deputy chairman of the Taleban Council of Ministers, Mullah Mohammad Hasan Akhond, said in a radio speech monitored by agencies.

But Taleban officials moved quickly to say that Hassan Akhond was not in a position to declare a jihad. The final decision lay with a council of clerics due to convene tomorrow or Friday.

The Taleban have been urged by a Pakistani delegation to give up Osama bin Laden, the man the US blames for the attacks.

Washington has threatened huge military retaliation unless Afghanistan hands over bin Laden. President George W. Bush has said the US wants him "dead or alive".

But the Taleban say the Saudi-born multimillionaire has been wrongly accused.

Pakistani sources said the Taleban had set conditions for a possible handover, including that bin Laden be allowed to go to a neutral Islamic country to face trial. Discussions on that, and the jihad, were continuing.

Thousands more Afghans tried to flee their homeland yesterday, joining communities of refugees already living in camps in Pakistan and Iran.

This morning, global attention again focused on Wall St as economists forecast that fallout from the terrorist strike at the heart of capitalism could last well into next year.

Uncertainty about the consequences of a US military response and shattered consumer confidence in America have dashed hopes that the economic superpower was about to shake off near-recession and stimulate a global recovery.

The dominance of the US means a slowdown there will reverberate internationally.

Share markets rallied around the world yesterday after US stocks did not fall as low as expected when Wall St resumed trading earlier in the day. Although $US591 billion ($1443 billion) was carved off the value of US shares, the percentage fall, 7.1 per cent, was not so dramatic.

In what appeared to be a coordinated effort to prop up the world economy, interest rate cuts in the US and Europe heartened investors.

In response, markets throughout Asia, Australia and New Zealand recovered some of the ground lost at the weekend.

The New Zealand sharemarket closed 2.2 per cent up after a 4.6 per cent loss on Monday.

While the terrorist strikes are not directly to blame for the loss of confidence in global markets, the aftershocks will shackle global economic growth.

The NZ dollar has lost nearly 2c against the US dollar since the attacks and was below 41USc last night as investors took flight for "safer" currencies. A lower dollar will make imports more expensive, with petrol already tipped to rise.

Falling commodity prices and reduced spending by our trading partners will hit NZ exports, flowing on to the farming sector.

The Reserve Bank is widely expected to cut interest rates by a quarter of a percentage point on October 3, with a similar cut likely in November.

The inbound tourism industry is expected to be hardest hit, as international travellers avoid long flights.

BNZ chief economist Tony Alexander said cancellations were already hitting tourism operators.

"People now have a changed view of aircraft. They are manned cruise missiles, basically."

Mr Alexander said the extent of the worldwide slowdown would depend on how quickly US consumers shook off the psychological blow to their confidence.

The US Government was introducing "very strong" stimulatory forces to limit the damage, including interest rate cuts, increased military spending, billions to rebuild Manhattan and billions more for the aviation industry.

Deutsche Bank chief economist Ulf Schoefisch said last week's attack could not have come at a worse time for the US.

US airlines have since cut thousands of jobs as cancelled trips and postponed conventions lead to idle rental cars, empty hotel rooms, vacant cruise-ship cabins, wide-open restaurants and quiet casinos.

Mr Schoefisch said New Zealand had withstood the slowdown for nine months and had been poised to emerge unscathed as the US economy picked up.

"Now the turnaround won't come so quickly."

Tourism Industry Association chief executive John Moriarty said travellers who had booked holidays were still coming to New Zealand.

"Further out, the jury's still out ... but there's no sign of a savage downturn yet."

In other developments:

* The FBI stepped up its search for collaborators in the attacks, detaining 49 people for questioning and casting a global dragnet for as many as 200 others.

* The number of people missing at the World Trade Center rose to 5422, with 201 bodies recovered.

* US Airways announced it would lay off 11,000 employees and cut its flight schedule 23 per cent.

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