Greg Wright: Bin Laden’s death will not change the global picture

WHAT will be the economic impact of the death of Osama bin Laden?

Apart from the appalling death toll, the terrorist attacks of September 11, 2001 caused panic in the global markets.

With bin Laden’s demise, can we expect a stock market rally?

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The terror chief’s death in a shoot-out with US forces in Pakistan ended a 10-year manhunt, and prompted some equity investors to believe that the world really had become a safer place.

In the short-term, the market outlook may improve, but concerns about the fundamental weaknesses of major economies, including the UK, remain.

Let’s not forget that the cloud cast by the global financial crisis is still with us.

However, on a day when the UK stock market was closed, the picture overseas was positive.

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Yesterday, European shares rose for an eighth straight session while oil prices fell.

In some quarters, bin Laden’s death raised expectations that the risk of attacks by Islamic radicals could decline and tension in the Middle East will ease.

This in turn could bring lower oil prices and ease some of the misery at the petrol pumps.

Others warned of the prospect of reprisals, which in turn, could cause further instability. Analysts said most of the risk premium attached to oil prices was based on the war in Libya, and wider unrest in the Middle East and North Africa, as well as increasing global oil demand.

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“The fall in price should be short-lived,” said Carsten Fritsch, a commodity analyst at Commerzbank in Frankfurt.

“Talk that the risk premium should ease due to bin Laden’s death is premature,” he added.

Some political analysts said bin Laden’s killing might trigger a violent response by al-Qaida and the Pakistani Taliban threatened attacks against government leaders, including President Asif Ali Zardari, the Pakistan army and the United States.

But oil analysts said it was unlikely that a terrrorist network would succeed in seriously disrupting oil supplies.

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The closest al-Qaida has come to hitting the oil industry was in February 2006, when Saudi forces repelled a suicide attack on the Abqaiq oil-processing centre.

The US Department of Homeland Security and the FBI have not issued any warning of a credible or imminent threat, but President Obama has warned Americans to remain vigilant.

Thorbjrn Bak Jensen of Global Risk Management suggested that the initial sell-off was unlikely to last.

He said: “We regard the reactions as temporary, as nothing fundamentally new is really on the table.

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“If anything, it might be a good idea to secure oil costs,” he said.

Although the market was lifted by the news of bin Laden’s death, analysts said that the positive impact might be short-lived and focus will soon shift back to economic fundamentals and company earnings.

Extra vigilance is essential because the terrorist menace isn’t going away. This vigilance also carries an economic cost.

“It would be naive to expect a nearing end of the al-Qaida threat,” Close Brothers Seydler strategist and board member Roger Peeters said yesterday.

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“However it could lead to some relief in the Western world and in the capital markets ... regarding the existing overall bullish mood in the markets, this news could give another positive impact especially in the US stock markets.”

Other trends in world politics give us grounds for optimism.

The movements for democratic reform in the Middle East are welcome because they have been caused by anger over poverty and social exclusion.

In time, they could lead to a stable Middle East in which prosperity is more broadly-based.

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We will all benefit from a world in which corruption is less common.

But, from a more parochial perspective, there are deep-rooted reasons to be gloomy.

As Roger Bootle, the economic adviser to Deloitte, states in today’s Business Tuesday, the UK labour market is still a cause for concern, while households are facing potentially their worst year since 1977.

Public sector employment is falling by around 100,000 jobs a year, and the private sector will struggle to provide work for every council employee who joins the dole queue.

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For millions of Britons, belt-tightening will remain the order of the day, which could be very bad news for Britain’s big retailers.

We should be braced for further turmoil and setbacks as Britain’s economy continues on its slow, sombre trek away from recession.

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