Last Friday’s terrorist attacks in Paris were despicable and cannot be justified in any way. They left over 130 persons dead and more than 350 persons seriously injured. They were an attack on our identity, as has been stated by a number of senior European political leaders, and an attack on our way of living. Therefore, it should not come as a surprise that these attacks will also have an economic impact.

Maybe the pain and the human tragedy are still so great that it sounds callous to analyse such events from an economic perspective. However, we must do so as we will surely start to feel the effects soon. The expectations are that these events are likely to bring about new uncertainties, if not change the ball game completely.

The reaction of the financial markets at the beginning of this week was not as negative as many had feared it would be. They proved to be resilient. However, it could be that many operators were still so shocked by the events that they were not active. It may sound like a silly explanation. In effect it would demonstrate a fear of taking the wrong view.

The expectations are that these events are likely to bring about new uncertainties, if not change the ball game completely

This fear could also have a very significant impact on consumption patterns. What if people stay away from crowded places like restaurants, shopping malls, train stations, football grounds and concert halls? What if people decide to cut down on their travel?

Businesses could face a fall in demand not because of a loss in purchasing power but due to a lack of willingness to frequent places where consumption of certain goods and services takes place. The subsequent events of this week, such as the cancellation of the Germany–Holland football match in Hanover, are likely to worsen consumer sentiment.

The expectation is of a change in behaviour, as was witnessed in the aftermath of the incidents of September 11, 2001 in the United States. The US experienced a significant drop in overseas arrivals, from which it recovered fully six years later. Would this change in consumer behaviour trigger an economic downturn?

Another possible impact of last week’s terrorist attack in Paris could be on migration flows. So far, most of the activities of the Islamic State were confined to Syria and Iraq. However, in the last weeks, apart from the events in Paris, we also had the suspected bombing of a Russian plane full of tourists over Egypt and atrocities committed in Turkey and Lebanon. Will this geographical expansion in activities of the IS increase migration flows?

Higher migration flows will also have an economic impact, demanding more resources from the public purse of several EU member states. Could an increase in migration flow towards Europe worsen the seemingly already precarious employment situation?

Another possible impact could be a shift in government expenditure. The French government’s response to the Paris events has been increased military activity. Will other governments increase their military activity? And if they do, where will they get their resources from? Presumably, by reducing expenditure in other areas, which could be health, education, or infrastructure. The need to reduce the fiscal deficit may not allow many other options.

A great deal will depend on whether the events in Paris will prove to be the game changers that many are expecting them to be. If they do have a significant impact on consumer behaviour and governments’ decisions across the EU, then they are likely to have an impact on Malta as well.

It may make sense to watch the situation closely from our end. There is simply no reason to ring alarm bells, but it would be wise to keep an eye on developments and identify any threats to our economy.

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