Dr. Sherry Cooper, chief economist at BMO Nesbitt Burns, says that she is reluctantly calling for a recession in the wake of Tuesday’s terrorist attacks in the United States.

“I am sadly forced to revise down my forecast for U.S., Canadian and global growth over the near-term,” she says.

“Just the disruption alone — the paralysis of New York and Washington as well as the airports in every city of the U.S. and Canada — would lead to a decline in GDP growth in the third quarter. If this had happened in 1999 when the economy was booming, the disruption might have led to a slowdown. But today, it likely means recession.”

The effect is compounded by the negative impact on consumer and business confidence, the downdraft in corporate earnings, and the intensified uncertainty, she says. “The mere distraction and shock that will send consumers around the world to their televisions and to the Internet will temporarily impair household spending.”

However, Cooper insists that the recession will be shallow and short. “What is even more noteworthy is that the rebound will be strong, boosted by the stimulative effects of reconstruction and government spending on defense and security. The Federal Reserve, the Bank of Canada and other central banks around the world have already infused the system with more than $120 billion in liquidity. The money first finds its way into cash and fixed-income securities, but it will ultimately provide the liquidity needed for a sharp stock market rebound. Interest rates will fall meaningfully further, both because of central bank easing and because of a flight to the safety of the Treasury market.”

“The attack on America will galvanize the country and the world to unite against a common foe,” Cooper suggests. “Americans will rise to the challenge of rebuilding and retaliation. This will not be a weak Christmas season. Now, more than ever, we appreciate the importance of family and friends. We will buy gifts this Christmas, though the celebrations will be bittersweet.”

“This will prove very soon to be a testament to the resilience and strength of the global economy and global financial markets. For the U.S., in particular, this will provide the rallying cry for a unified response. At the very time that the economy appeared to be weak and troubled, the surprise will be the 4%-to-5% growth rates we will see by the second quarter of next year, the end of the bear market in stocks, and a huge rebound in consumer and business confidence,” she concludes.