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Economists react to Paris attacks

Analysts warn that fear following the horrendous terrorist attacks may dampen the economic mood around the world. But, they say, the damage done to both France’s and the global economy will be minimal and short-lived.
While the horrendous attacks in Paris, which left at least 129 people dead, are sure to leave a lasting scar on the French psyche, analysts say the knock-on effects on the nation’s economy, as well as that of its western allies, are likely to be short-lived.

“History shows that such terrorist acts don’t usually derail the trajectory of western economies,” observed Holger Schmieding, chief economist at the multinational, Hamburg-based Berenberg Bank.

Even in the immediate aftermath of the 2005 London bombings, private consumption marched on, growing at the same rate as the preceding four quarters. Spaniards showed similar resilience following the 2004 Madrid train bombing.

Minimal economic damage

In France’s case, the fear sparked by Saturday’s terror attacks may paralyze consumers – but not for long, predicted Jörg Krämer, chief economist at Commerzbank.

“Despite the devastating attacks in New York on 9/11, 2001, the terrorists failed to do lasting damage to the US economy,” he told DW. That month retail sales dropped, but only to bounce back in October. “I don’t think global trade will suffer [from the Paris attacks] – even if we see a tightening of safety precautions,” said Krämer.

“In the past, terrorists atrocities have barely affected the economic performance of neither France, nor Spain or the UK,” Howard Archer, an economist with IHS Global Insight, told German business daily Handelsblatt on Monday. This time around, the ripple effects are likely to hit France’s travel and hotel sectors the hardest, which together make up around 7.5 percent of the country’s gross output.

Security costs

As France scrambles to keep its citizens safe, the costs of increasing security is expected to add to the country’s deficit, according to Schmieding. Thousands of troops have been deployed since Saturday’s attack, while police have has worked on overdrive, carrying out more than 150 raids on suspected extremists. In the short term, however, the increased safety measures are unlikely to dampen overall demand, added the Berenberg economist.

Unless more attacks follow, JP Morgan analyst Malcolm Barr said he also doesn’t expect the weekend’s devastating events to shut down France’s economic engine, with increased spending in other areas poised to make up for potential slumps in the retail, tourism or travel industries.

Global impact

Fears that tragedy in Paris could spark a wider scare among tourists were particularly visible as global trading began for the first time since the attacks. With tourism- and travel-related sectors all taking a hit, London Capital Group analyst Brenda Kelly told AFP it was “little wonder that investor sentiment [was] dented.”

Proving that France will not be cowed by terrorists, financial markets opened as usual on Monday. Still, stocks sank in early trading. Shares in French hotel group Accor – Europe’s largest – were down 5.5 percent around noon, while national carrier Air France saw its shares nosedive over five percent. In London, British Airways owner IAG lost 2.3 percent, InterContinental Hotels Group was down 2 percent, and Eurotunnel was 4.5 percent weaker. In Frankfurt, the DAX also got off to a bumpy start, with Lufthansa shares dropping nearly 2.9 percent.

German industry on edge

But even as shares sunk on Monday, German industry leaders were reluctant to speak on the expected fallout from the tragedy.

“We’re horrified and in deep shock,” said head of the Federation of German Industries (BDI), Ulrich Grillo, on Monday. “In light of these tragic events, now is not the time to speculate on the economic consequences.”

pad/hg (AFP, Reuters)

Topics: Economists

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