Economic effects of terror attacks ‘not long-lasting’

Investors sought out the safe haven of gold as stock markets dipped and tourism shares dropped in the aftermath of the attacks on Brussels.

Sterling also fell against the euro and dollar — because investors believe the latest attacks could bolster British advocates for the UK to leave the EU in its referendum in June.

However, economists say that, in a pattern established since the attacks on New York and Washington in 2001 and on Paris late last year, the effects on markets and local economies of the attacks will unlikely be long-lasting.

The focus of markets will likely return to the ECB’s efforts to boost the eurozone’s tepid economic recovery.

Jennifer McKeown, senior European economist at Capital Economics in London, said the effects of the attacks on business and consumer sentiment will be closely watched.

Coincidentally, surveys yesterday showed business activity in the eurozone and sentiment in powerhouse Germany ended the first quarter on a brighter note, hinting possibly that the ECB measures were stimulating activity at long last.

Markit’s flash composite Purchasing Managers’ Index jumped in March, while German business morale rose more than expected this month, snapping a three-month run of falls as companies’ assessments of both the current situation and the outlook improved, the Munich-based Ifo economic institute said.

After plunging early yesterday, the Bel 20, Brussels’ main stock market index, ended the day only slightly lower.

The Paris CAC-40 — the leading index of French shares — is sharply lower since that city suffered deadly attacks in November, but much of the slump was caused by the Europe-wide slide in stock markets since the start of the year.

The Istanbul stock market was trading close to 2016 highs despite Saturday’s attack on a central pedestrian boulevard, the fourth suicide bombing in Turkey this year.

Nonetheless, fears will grow that the tourism industry in France and Belgium and other European capitals could be badly hit.

“The big effects will be on sentiment,” Ms McKeown at Capital Economics said.

The attacks will add to the concerns of Europe facing the challenges of a possible UK vote to leave the EU and the continent’s refugee crisis, she said.

Sterling was the worst-performer, falling for a second day against the dollar and euro.

“The most negative reaction is for GBP,” Athanasios Vamvakidis, head of Group-of-10 currency strategy at Bank of America Merrill Lynch in London, said.

“Any events that could give, to some people, arguments against migrants and refugees — such as a terrorist attack — could increase ‘Brexit’ risks.”

Stocks which showed sharp moves yesterday included: Air France-KLM; Ryanair; IAG, the parent of British Airways and Aer Lingus; and hotel operator Accor, all of which slipped by at least 2.2%, dragging travel and leisure shares to the worst performance on the Stoxx Europe 600 Index.

Thomas Cook lost 4.5% after saying 2016 summer bookings have been lower than last year.

Eurotunnel slid 3.8%, while Assicurazioni Generali, Standard Life, and Axa all fell at least 2.3%.

Swedish firm Securitas, whose services include airport security, climbed 3.7%.