Global Terror’s Other Victim: World Economies

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Although fear, confusion, tears and sorrow are still fresh, a picture of the impact of these recent attacks have on trade, growth and is starting to emerge.

 

With respect to trade, when borders are open, trading between nations is more efficient and less expensive. When borders are tightened, or closed, trade declines. Remember, one of the pretexts of the eurozone was to create a single economic region that could compete with economic superpowers. In a single stroke, terrorists have undermined this premise.

 

When terror rises in a region tourism declines. For a eurozone struggling with a tepid economy, declining tourism presents a risk to economic growth. According to the World Travel & Tourism Council, tourism contributes:

 

  • $552 billion to the EU GDP.
  • 9 million jobs directly
  • 22 million jobs indirectly.
  • 5% of direct investment in the EU.

 

Declining consumer sentiment undermines consumer spending, the bedrock of western economies. But this impact is not limited to the eurozone. When the euro declines against the dollar, the earnings of U.S. multinationals face greater headwinds from currency translations, which lower earnings, which almost without exception, lower stock prices.

 

Further, terror related contractions wash ashore in the U.S. even when attacks occur overseas. Europe, Africa and the Middle East (EAME) represent 12% of sales for the S&P 500 or about $1.3 trillion of revenues directly exposed to terror threats. But that’s just the S&P 500. Any US company doing business internationally is susceptible to the threat of terrorism related revenue and earnings declines.

 

While the impacts of terrorism come immediately in the form of loss of life, grief and fear the economic losses spread even wider. One analysis of the 9/11 attacks put the total price tag at $3.3 trillion, or about $7 million for every dollar spent by Al Qaeda planning and launching the attacks. Here’s how the New York Times broke down the costs:

 

  • Physical damage: $55 billion
  • Economic impact (business interruption, event cancellation): $123 billion
  • Security costs (Homeland, national intelligence, lost time at airports): $589 billion
  • Warfare: $1,649 billion
  • Future costs (Middle eastern military bases, medical and disability expenses): $867 billion.

 

Some of these costs and expenses represent net contributions to the economy, and that’s a possible bright spot, but not one any investor wants to capitalize on.

 

Sources:

 

S&P 500 Revenues From Europe

http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_11.13.15

 

EU Tourism

http://www.wttc.org/-/media/files/reports/economic%20impact%20research/regional%20reports/european_union2014.pdf

 

9/11 Costs

http://www.nytimes.com/interactive/2011/09/08/us/sept-11-reckoning/cost-graphic.html?_r=0