Economic effect of Paris attacks are likely to be limited

When it comes to the long-term national economic effects on western cities from outrages such as the killings in Paris, history tells us that the size of the attack does matter.

Economic effect of Paris attacks are likely to be limited

The 9/11 attacks on New York and Washington lowered US GDP and sent the costs of crude oil surging and most world stock market indices plunging.

The political fallout and the subsequent American invasion of Iraq escalated the costs and likely pushed a number of US airlines into bankruptcy.

Other huge costs were felt in New York but, as witnessed by the economy of that city since 2001, even huge attacks involving airplanes slamming into sky scrapers and the loss of thousands of lives may not have long-term economic effects.

The stock market charts show the Dow Jones Industrial Average tumbling that September, but the effects were not long-lasting. The 2008 market plunge sparked by the collapse of Lehman was deeper and presaged a much sharper economic crisis, the global banking crisis.

And as far as one can measure such things, the Charlie Hebdo attacks in Paris last January had only short-term economic and market effects too.

The CAC 40 tracking the leading shares on the Paris bourse yesterday ended little changed, and the index is still about 12% higher since the January attacks.

France is the second largest economy in the eurozone and there are undoubtedly some economic effects.

The worst performing industry group in Europe yesterday was travel and leisure, Paris is, after all, the world’s most popular tourist destination.

Air-France KLM fell by 7% at one stage yesterday, while Accor, Europe’s biggest hotel operator, dropped as much as 9%.

But tourism, at just over 7% of GDP, is more important in France than for the Irish economy, which suggests the Paris attacks will not have national long-lasting effects. At 10.3%, unemployment in France is only slightly higher than in Ireland’s 9.3% rate.

Because the destruction is not on the scale of 9/11, “the economic effects are likely to be quite limited”, said Jessica Hinds, European economist at Capital Economics in London.

And the economic effects of the Madrid train bombings in 2004 and the tube and bus attacks in London the following year were “fairly limited in terms of the economic impact”, she said.

French economic growth remains tepid. Figures published last week showed it grew a meagre 0.3% in the third quarter, and by a modest 1.2% from a year earlier, following stagnation in the second quarter.

Capital Economics is expecting a slight slowdown in French growth in the fourth quarter, as the boost from the weaker euro the past year on France and other eurozone economies fades.

“We do expect some negative effect of business and consumer in the months ahead and it does depend what happens next, particularly on the political front,” said Ms Hinds. France goes to the polls in regional elections in December.

Analysts are watching if the far-right National Front capitalise on the attacks and what that would mean for the 2017 National Assembly elections.

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