The American economy is poised on the edge of a double-dip recession, write David Teather in New York and Larry Elliott in London

It's called "the widow". An unremarkable building by Manhattan standards, the office block that was once the New York home to Deutsche Bank now has a 20-storey gash down the front draped in a black shroud to stop rubble falling on those who come to stare at the emptiness where a year ago today the World Trade Centre still stood.

Whether "the widow" will remain standing or be bulldozed to the ground is a matter for Deutsche's insurers. But the soubriquet is in keeping for a Wall Street that is still in mourning a year after two hijacked planes were flown into the skyscrapers that had come to symbolise brash, in-your-face American capitalism.

If America was the spiritual home of the new world order, then New York was its capital. A panning shot of the Manhattan skyline ending with the Twin Towers meant one thing alone: the hegemony of Wall Street.

The mood among dealers as they emerged from the subways on September 11th last year was sombre: 18 months after the pricking of the dotcom bubble, the American economy was gripped by a slow-motion recession.

Share prices were already well down on the peaks reached in early 2000.

As the disaster unfolded a few blocks away, the New York Stock Exchange quickly closed its doors and locked traders in. They watched televisions in horror and saw the whole of lower Manhattan engulfed in black smoke, unaware of whether or not the entire area was on fire. As the towers fell, the exchange shook and the windows turned black.

Ground Zero became a tomb for more than 3,000 people working in the World Trade Centre. That fact, more than declining share prices, explains why the financial district has lost its former buzz. "You feel like maybe the area has lost that Wall Street mystique," said Mr Tommy Bennetter, a broker who used to work on the 55th floor of the second tower. "There's more light around. It feels like you are missing something. There's that big void in the 16 acres but also in the people that you've lost.

"Whenever you used to go downtown," he added, "there would be these guys in suits with that look in their eye, hungry to make some dollars. But things seem a little quieter now, not just in the actual noise but also the energy."

People, he said, are still being a little bit nicer to each other than they were a year ago.

The stock market in New York was closed for the rest of the week following the attack that Tuesday. Before it reopened the following Monday, the Federal Reserve cut interest rates by half a point in an attempt to shore up confidence. It made little difference as the Dow Jones index lost 685 points on fears that the recession would turn into a full-scale slump.

The terrorists were not just interested in mass destruction, they also wanted to destabilise Western economies. In this, too, they have succeeded.

The world's three biggest economies - the US, Japan and Europe - are all struggling, stock markets have fallen around the world and record losses have been recorded by airlines and insurance companies.

Unwittingly, perhaps, the agents of Osama bin Laden also peeled back the skin of American capitalism to reveal a festering mess beneath. Within two months of September 11th, the game was up for Enron and a spotlight trained on the titans of the corporate sector.

As Mr Bill Martin, of UBS Global Asset Management, put it, the recession uncovered what the auditors had not: company accounts that did not add up. For those executives now facing charges for fraud, the clock started ticking when the Twin Towers collapsed. The "smoke and mirror" approach to accounting that had sufficed in the bull market of the late 1990s was no longer good enough in late 2001 and 2002.

Further reductions in the cost of borrowing followed the emergency cuts - not just in the US but across the world - and for a time the medicine appeared to work. There was the anticipated drop in consumer confidence, retail spending and factory production, but the swift and decisive action by central banks meant that by the end of 2001 stock markets were recovering in anticipation of a robust economic recovery in 2002. The effect, however, was short-lived.

It was as if the terrorists had not just flown aircraft into office blocks but had planted devices timed to go off at strategic intervals in the following months, each one detonated just as the markets seemed to be recovering.

Mr Roger Frank, a salesman at the investment bank Salomon Smith Barney, says that people no longer talk about the events of September 11th every day. "But it's pretty obvious how deep the wounds are because when it is mentioned people quickly become very sombre and pensive and contemplative. It's just beneath the surface.

"The bloom has been off the rose on Wall Street for well over two years," he added.

An overview of the global economy makes depressing reading. Despite 11 cuts in interest rates last year, the American economy is poised on the edge of a double-dip recession.

The Dow Jones Industrial Average is lower than it was on September 11th last year. Japan's Nikkei index is at its lowest for 19 years on entirely justified fears that exports will be adversely affected by the weakness of the US economy.

The same applies to the euro zone. Latin America, umbilically linked to the performance of the US economy, is an accident waiting to happen. In Argentina, it already has.

The mood now is of recovery delayed. No one on Wall Street doubts it will eventually happen, but like the generals in the first World War there is talk of digging in for the long haul.

Citigroup, the largest banking group in the US, has been quietly making its mid-town landmark building bomb proof. Others are leaving lower Manhattan altogether, such as Bank of America, Cantor Fitzgerald and Morgan Stanley.

The character of downtown Manhattan is irrevocably altered. The Twin Towers were the most visible buildings to fall but another four were also destroyed and 23 surrounding properties were damaged - 10 of those still stand empty.

"Vacancy rates (in unharmed buildings) are running at 20 per cent and continue to expand," said Mr Myers Mermel at the real estate agency Tenantwise.com. "People don't want to work down here." Century 21, the landmark discount department store facing Ground Zero, reopened at the end of February. Sales have been down by about 10 per cent on last year. "The major problem for us is that the transport hub underneath the World Trade Centre is still being rebuilt," said its chief operating officer, Mr Raymond Gindi.

He is on the board of the committee overseeing the rebuilding of Ground Zero, which, he says, is moving ponderously. "We are at the point where there are so many divergent views from the likes of victims' families and developers. This is being run by committee and it's very difficult to be inclusive and please everybody - I think this will take a long time."

But while New York is repairing the physical damage from September 11th, the scars on the economy will take longer to heal. And with the prospect of war against Iraq looming, Wall Street's sombre mood is only likely to darken further. - (Guardian Service)