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Terrorism won't harm the French economy -- unless it recurs

In the wake of the horrific Paris attacks, which claimed 130 lives, the French could at least take cold comfort that the damage to their pocketbooks would be limited -- because after other terrorist atrocities, economies and stock markets have shrugged off the horror.

But past attacks were one-time incidents. What if the Nov. 13 slaughter is just the beginning of a long series of bloodthirsty assaults? Already, Paris has recently suffered two previous terror tragedies, when gunmen killed a dozen people at the office of satirical magazine Charlie Hebdo and four more died in an attack at a kosher grocery store. Those were only in January. France and neighboring Belgium have large Muslim populations, with significant numbers of radicals known to be hiding in their midst.

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A report from Eurasia Group researchers warned that "the attacks were not a one-off event but rather part of a pattern of increased terrorist risk to Europe." As a result, they said, more incidents "could depress consumer and investor confidence."

The long-term effect would be a body blow to the vibrant tourist industry in France -- which accounts for 7 percent of GDP, says Moody's Analytics -- as well as tourism in other European nations. People would steer clear of commercial centers, such as concerts, sports and restaurants.

If Europe tightens its borders, its celebrated free-flowing commerce likely would suffer. Worse, sustained terrorist strikes could spur the rise of France's anti-Islamic National Front, which calls for pulling the country out of the European Union. The exit of France, the Continent's No. 2 economic power (behind Germany), surely would hobble the EU's trading and weaken the broader European economy.

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In the immediate aftermath of the Nov. 13 massacre, the economic signs are mildly encouraging, but the situation is fragile. Another terrorist onslaught surely would devastate its long-run prospects. The National Institute of Statistics and Economic Studies reported that France's GDP inched up 0.3 percent in the third quarter, and unemployment stayed steady at 10.3 percent.

Howard Archer, IHS Global Insight's chief European economist, said the attacks certainly will hurt the Paris economy in the near term. News reports say the city's department store sales are halved and hotel occupancy is slashed. Many fliers scrubbed their plans. German insurer Allianz reported a surge in air travel coverage, which pays off should trips get canceled.

If no further terrorist bloodshed troubles France, however, odds are that things will return to normal. Extremist bombings of mass transit in Madrid in 2004 and London in 2005 "had only minor effects on retail sales and confidence," according to research firm Capital Economics. Stock performance revived quickly.

Following the Sept. 11, 2001, terrorist attacks, U.S. GDP rose 1.1 percent for the fourth quarter as America climbed out of a recession (which officially ended November 2001). And the Standard & Poor's 500 rose 10.6 percent to yearend.

Stock markets distill what investors think about the future. In that light, the reaction of France's benchmark equities index, the CAC 40, seems promising. This past week, it moved up 2.2 percent.

So, all may be well, at least for now.

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