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By
Reuters
Published
Nov 17, 2015
Reading time
3 minutes
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Attacks complicate French route to economic recovery

By
Reuters
Published
Nov 17, 2015

The French economy's cautious path to recovery will be trickier after Friday's attacks that killed 129 people, with the outlook uncertain for the retail and tourism sectors but some boost expected from a rise in public sector security spending.

With quarterly growth of 0.3 percent in the three months to the end of September, the economy has probably already achieved the one percent growth the government was hoping for this year.

Shopping on the Champs Elysées - Pierre Verdy AFP


But after the attacks by Islamist militant gunmen and suicide bombers, household spending will be key to how well the euro zone's second-biggest economy holds up.

In a positive sign for consumer spending, a spirit of defiance has quickly emerged with grassroots movements sprouting up on the internet to encourage Parisians to go out to bars, concerts and sports events as evidence attackers cannot deter them from getting on with their lives.

The experience of Spain after attacks in Madrid in March, 2004 and Britain after bombings in London in July, 2005 is reassuring: neither suffered lasting economic harm.

Likewise, there were few signs the French economy suffered earlier this year after Islamist gunmen killed 17 people in attacks on satirical weekly Charlie Hebdo and a kosher supermarket in January. Consumer confidence held steady and went on to reach an eight-year high by September while first quarter growth was the strongest in nearly two years. link.reuters.com/pef35s

But this time around the attacks came just before the Christmas spending season, when a small dip in retail spending can have an outsized impact on annual figures. Listed luxury retailers generally make 25-30 percent of their annual sales in the Christmas season, according to Societe Generale analysts.

The MEDEF employers union said it was important to calibrate security measures carefully so as not to discourage shoppers.

"We had been gradually regaining growth and it's all still very fragile, the attacks must not lead to too many difficulties for our companies," MEDEF head Pierre Gattaz told journalists.

Barclays economist Philippe Gudin was worried less about retail than tourism, which generates more than 7 percent of economic output for the world's most visited country.

"The closure of most shopping and entertainment activities during the last weekend in Paris certainly had a mechanical impact on consumer demand, but activity seems to have recovered quickly as Parisians are keen to show their willingness to continue living their lives the same way," he wrote in a research note.

"Tourism could be hurt more durably, and in that respect it is likely that French fourth quarter GDP growth will be affected," he added.

Weighing against a contraction in demand from retail or tourism would be a boost from increased security spending on the public sector, which has been subject to belt-tightening in recent years. Thousands more police jobs have been announced in the aftermath of the attacks.

A Finance Ministry source said that the cost to the public purse would be in the hundreds of millions of euros, which Prime Minister Manuel Valls said would mean France would breach its EU deficit commitments. 
 

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