European policy makers warned yesterday of a likely sharp blow to economic prospects from the conflict over Afghanistan as news of higher German unemployment confirmed the German economy was already slowing.
European Monetary Affairs Commissioner Mr Pedro Solbes said the US economy would enter recession and the European economy might not start rebounding until next year as the September 11th attacks on New York and Washington took their toll.
"We expect the US to enter into recession but quite a vigorous recovery should follow in 2002," he said, adding that recent indicators suggested Japan was already in recession.
With European business and consumer confidence already falling since the attacks, the current chairman of European Union finance ministers Mr Didier Reynders said such confidence could be eroded further if the conflict lasted a long time.
Growth in the 15-nation European Union was slowing before September 11th and Mr Solbes said the region could see a deeper and more protracted slowdown than previously expected.
"The projected bottoming out of the slowdown towards the end of the year might be delayed to 2002," he added in the text of a speech prepared for delivery at a EU/Japan forum in Brussels.
Earlier, Mr Solbes said the European Commission expected the EU economy to grow by "clearly over 1 per cent but clearly also below 2 per cent".
The latest evidence of European economic slowdown came from a German report that seasonally adjusted unemployment rose by 20,000 last month to 3.882 million.
This confirmed fears that August's improvement was a statistical aberration and continued the otherwise unbroken upward trend since January.
Unemployment in September climbed to 9.4 per cent of the workforce. Even the surprise 2 per cent month-on-month rise in industrial production in August failed to boost confidence in prospects for the euro zone's biggest economy. Officials admitted the figure had been distorted by the unusually large number of holidays in July.
In the latest sign that Japan may already be in recession, Japan's Ministry of Finance said its 11 branch offices reported regional economic conditions had worsened since June.
The report has heightened expectations that Japan will post a second consecutive quarter of economic contraction in July-September, coming on top of a 0.8 per cent contraction in April-June.
