Why terrorism has a limited impact on markets
by Buttonwood, The Economist
FOR some people, even to discuss the impact on an economy, let alone financial markets, of a tragedy such as the Paris attacks is poor taste. But one of the aims of terrorists is to cause economic and financial damage; hence the attacks on Wall Street on 9/11 or on tourists in Tunisia earlier this year. So the issue is worth considering.
Despite some dire predictions at the weekend, financial markets have been remarkably sanguine in the face of this latest tragedy; at the time of writing, both the London and Frankfurt markets are up on the day. In this, investors may be learning from past experience. The events of 9/11 - an atrocity on a vastly greater scale than anything that preceded it - may have reduced GDP growth in the US that year by half a percentage point; the stockmarket (which was closed for a few days) recovered all its losses within a month. In July 2005, when suicide bombers attacked the London transport network, the UK market recoveredwithin days; British GDP rose 0.8% that quarter.
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