By Anne D. Picker, International Economist,Econoday
Monday, October 22, 2001

Equity investors' early week resolve crumbled on fears that anthrax will hit consumer confidence, sending share prices tumbling. Growing unease surrounding anthrax, including rumors in the United States and elsewhere, tried investors' nerves. Only the South Korean Kospi managed to rise on the week. Amid this gloom earnings season arrived, and while some reports eased investors' fears, others only confirmed them. Economic data in the United States and elsewhere continued to present a mixed bag with much of it reporting on pre-September 11 conditions. However, Friday's plunge in the German Ifo confidence index confirmed the worst fears for the European economies, and shares posted their first weekly drop since September 21.

Compounding European investor uncertainty was the European Union meeting, which became fractious over a draft statement that called for the European Central Bank (ECB) to take further decisive action in easing monetary policy in order to boost the EMU economy. But the statement was quickly rewritten after ECB chairman Wim Duisenberg objected. The text was watered down to say that weakening inflation provided room to "maneuver" on monetary policy. The EU is not supposed to have any say over the decision of the ECB, which is strictly independent.

The Japanese government finally admitted that the economy was doomed to contract this fiscal year - a prediction widely shared by economists but until now rejected by the government. The gloomy outlook has prompted calls from politicians and some business leaders for the government to implement yet another large new stimulus package. But earlier in the week the government insisted it would not repeat the type of heavy fiscal spending packages that were used by governments in the past and which did not resolve Japan's structural problems. Prime Minister Junichiro Koizumi lent his support to an appeal for Japanese consumers to spend in an effort to turn the economy around.

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