Don’t underestimate the Paris Attacks’ effects

In addition to human consequences of extreme gravity and ongoing threats against France’s national security, the terrorist attacks which took place on November 13, 2015 in Paris and left 130 dead and 352 wounded should impact the country’s economy. Although the government was welcoming the re-start of economic growth with a GDP increasing by 0.3% in Q3 2015, the Paris attacks could potentially break the fragile recovery dynamic down. Concerns mainly focus on investment, trade and tourism. According to Paris’ chamber of commerce, department stores like Printemps and Galerie Lafayette have had from one third to one half less customers since the attacks. Malls experienced a similar 10% to 15% decrease as Christmas is nearing.

Yet most of the economists consider that the situation, namely touristic, will normalize within 1 to 2 quarters after the attacks. The government shows its confidence and doesn’t believe the impact will endure. Our analysts worry about a possible undervaluation of these attacks’ consequences. Firstly, these were the second major attack after January 2015’s and two attacks, rather than just one, generating a second toll that is worse than the first one, on a same year, constitute an unprecedented case for the French economy. Secondly, the tension has reached a climax whereas sporadic attacks were foiled and/or carried out throughout the year.

All this contributes to the deterioration of business climate, rising unemployment, shrinking investment perspectives and damaging reputation of France’s stability. In addition to economic consequences, the compensation to the victims should cost the State from €500 million to €1 billion considering most of them were young. Politics will not be spared. After the usual unity that follows such circumstances, the socialist government of President François Hollande should likely go through a serious political crisis. In case of a new terrorist attack, the economic, social and political consequences will grow geometrically.