Eurozone recovery unlikely to be derailed by Paris attacks, but long-run growth will depend on political responses, say economists

Chris Papadopoullos
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Economists said the future outlook for the Eurozone economy was unpredictable due to political ramifications (Source: Getty)

The attacks in Paris are unlikely to derail the economic recovery in France and the Eurozone, economists have said, but equities could be hit this week and the longer-term economic outlook is clouded by possible political decisions.

"It is obviously likely to significantly hit the Paris economy in the near term, and there could also be a knock-on effect elsewhere in France. There could also be an adverse impact on tourism in some European countries," said Howard Archer, chief economist at IHS.

"As horrific as these events are – and this is truly awful – economic activity does tend to be pretty resilient."

He added:

At the end of the day, people have to get on with their lives. And that is the best way of putting up two fingers to the terrorists.

Other economists were largely in agreement over the medium term impact. Erik Nielsen, group chief economist at UniCredit Research said "there is no way that fundamentals will change to an extent that would derail the recovery" while Alastair Winter, chief economist at Daniel Stewart:

Equities are expected to fall this week because of the potential damage to the French and EZ economy but this may well be a very short-term reaction and be overtaken by other developments. Markets are typically very unsentimental over such events.

“Experience suggests that such acts of terror do not derail economic trends in mature Western economies,” said Holger Schmieding, chief economist at Berenberg.

But the longer-term economic impact is highly unpredictable due to the political processes set in motion by the attacks.

“Terror attacks raise profound political issues that can also have longer-term economic consequences,” Schmieding said.

He presents the issues as three questions:

Both Russia and the West have been hit by heinous acts of apparent Islamist terror within a few days. Will the major powers now try to sort out the Syrian problem much more energetically, as the tentative progress at the last talks on Syria and first reports from the G20 may suggest?

Will the political fallout from the terror attacks make it easier or more difficult to tackle other urgent issues such as the refugee crisis?

While right-wing populists may try to use the attacks to their political advantage, could the violent challenge to the civilised world also make it easier for the mainstream parties in Europe to set some of their differences aside and work together more closely, including on attempts to do more to integrate refugees? Or will it detract from the need for reforms, for instance from the labour market reforms needed to ease the integration of migrants, refugees and long-term unemployed into the labour market?

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