Economic impact of Brussels attacks

There is a consensus that the attacks in the Belgian capital on Tuesday may not have a long-term impact on EU markets, but should such assaults continue unrestrained they could result in hitting some key sectors such as travel and tourism.
Belgium’s main stock index ended more or less flat on the day of attack and rose 0.2 percent on Wednesday, a testament to the investment community’s level-headedness and resilience.
Shares in travel and tourism-related companies tumbled on Tuesday, with airlines such as Air France-KLM and the parent company of British Airways leading the trend. Shares in hotelier Accor also fell, as did the operator of the Eurotunnel connecting Britain and France. Insurers that will be on the hook for damages from the attacks also saw shares fall.
Until now, more than 400 million EU citizens, as well as non-EU nationals, business travellers, and tourists, are able to travel throughout 26 European countries — known as the Schengen zone — without having their passport or visa checked.
But with the economy of US$18 trillion, it will become so difficult for the EU to move goods and people should frequency of such attacks increase. That would have a huge economic challenge not only on Europe but also on the world’s economy.
Yet, history has it that such attacks in the past had limited impact on business in Europe. Investors think the economic impact on Belgium and across Europe as a whole will be limited. The experience of terror attacks in Europe in the past decade have helped the business community keep their cool in the face of Brussels attacks.
This may be attributed to firms, which have improved their responses to security emergencies. Further, people have shown a willingness to get back to life as usual as soon as they can: be it shopping, boarding a train or having a meal. And governments learn to put in place security measures they hope will deter more attacks.
Indeed, markets were volatile after mass-casualty bombings in Madrid in 2004 and London in 2005. That was not the case after the two attacks in Paris last year, thanks partly to digital media, which helps traders understand more quickly the scale of an attack, but also partly the understanding that daily life resumes relatively quickly. So, the reaction of financial markets to the terrorist attacks in Brussels was calm and mature, showing that they have learned the lessons of such tragedies and become resilient to frequent incidents.
That doesn’t mean that the Belgian economy won’t face any short-term economic fallout from the attacks. Consumer spending, particularly in the capital, will likely take a hit as will tourism ahead of the long Easter weekend. Belgian cities, such as Bruges and Brussels, traditionally sees tourist numbers rise at this time of year as many Europeans look for a city break.
Economic consultancy IHS Global Insight expects the bombings to shave 0.1 percentage point off Belgium’s quarterly economic growth, in line with the reduction in French GDP in the fourth quarter of 2015 after the attacks in Paris. With Belgium accounting for about 4 percent of the eurozone, that would not have a significant impact on the region overall.

Leave a Reply

Send this to a friend