Economic contraction 'almost certain', admits US Treasury Secretary O'Neill

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The Independent Online

Fears of an American recession rose sharply yesterday after Paul O'Neill, the US Treasury Secretary, admitted the economy would "almost certainly" contract in the wake of the terror attacks on New York and Washington.

His warning came as official figures showed employment had fallen by its largest amount in 10 years, even before last month's outrage.

Mr O'Neill said: "The attacks of 11 September were a shock to our economy, abruptly halting activity in many sectors which will almost certainly result in a negative growth rate in the third quarter and a delayed recovery by a quarter or so."

He was speaking ahead of today's hastily-arranged meeting of finance ministers of the Group of Seven nations, which includes the UK.

The meeting will be held against an increasingly gloomy background. The American government said yesterday that US firms had shed nearly 200,000 jobs last month.

"It is likely the events of 11 September had little effect on the September employment and unemployment figures," said Katharine Abraham, at the Labour Department. "Job loss related directly or indirectly [to the attacks] should begin to be reflected in the October data.

"It certainly indicates a weak economy going into this terrorists action," said Delos Smith, senior economist with the Conference Board, a business research group in New York. "Obviously, the October number is going to be very, very poor."

However there was a ray of hope yesterday as Abby Joseph Cohen, chief investment strategist at Goldman Sachs, said the stock market would rise by a third by the end of next year.

Ms Cohen, who is identified with the bull run of the late 1990s, expects the S&P500 to hit 1,300 to 1,425.