Daily Management Review

Paris and the World Economy


The most important thing is certainly people, who became victims of inhuman cruelty. The terrorist attacks, that took place in Paris, stirred up the whole world, which started from a terrible tragedy that claimed 132 people according to the latest figures.

Dimitri Destugues
Dimitri Destugues
Paris is a kind of "Mecca" of world tourism. However, recent events not only struck people with terror. Many are elementary seized with fear of a hypothetical repetition of the tragedy. The French tourism industry creates 7.5% of GDP for the country, which is extremely important for such a powerful industrial nation. Now it is under threat. The tourism industry sunk into a so-called shock drop in demand. Experts say that, in principle, this is a natural process after such events, yet but no one can ultimately predict how it may affect the tourism industry.

Experts said that in the coming days, tourism in France would fall significantly. The country is recognized as a world leader by the number of tourists. About 7.5 million people visited Paris from January to June this year. Total number across France was about 83.7 million tourists last year, bringing 150 bln. euro overall. This trend continued in 2015 - until November.

Of course, the hotel business was first to be affected. For example, hoteliers were looking forward to the World Conference on climate SOR21 (30 November to 11 December, number of visitors 50.0 th. People). However, now the event is in jeopardy. Most likely many will refuse.

 According to experts, luxury hotels are going to be affected the most. The fall in demand was partly caused by the policies of some world tour operators who began to ask their clients about whether they intend to actually go to Paris. Obviously, not all of them have the courage to do it. Many refused to travel to the French capital. There is no evidence of decline in tourist traffic yet. However, it not a secret that it has already slumped. The Charlie Hebdo tragedy showed how tourism is afraid of terrorist attacks and other mass tragedies. Paris hotels immediately missed about 5% of clients just in the first days after the tragedy happened. A week later, this figure increased to 10%. For the first half of the year, the French tourism industry missed 1.8% compared to the same period in 2014.

It's not all the economic problems in stock for Paris. The town has been deserted. Mass events have been minimized and now are being carried out only with the authorities’ permission.

Furthermore, organizers themselves are on the watch and not particularly eager to carry out a variety of fairs, exhibitions, etc. For example, a Christmas market at the Champs Elysees was not even opened. Museums, banks, enterprises engaged in the organization of entertainment, including Disneyland, were closed on Saturday. Many cinemas, such as the Gaumont Pathe, canceled all sessions. Many retailers decided not to open referring to ensure safety requirements at the weekend.
Apart from safety, there is another problem - buyers have disappeared. Even opened boutiques didn’t see any clients. Paris dived in shock, it is mourning. Not a really good time for shopping. Many owners allowed their employees to decide whether they are ready to go to work or want to stay at home.

Experts are forecasting that American and European consumers will be likely to cut their spendings, due to the fact that the issue of terrorism dominates the world media.

Dennis Gartman, founder of The Gartman Letter, comments:

"If you do not believe that consumers are going to cut expenditures, you are naive. Of course, they will. Even in Virginia, where I live, you can feel that people are very closely watching what is happening in the world."
Hartmann added that he was "puzzled, surprised and stunned" by the fact that stock markets rose after the attacks last week. No doubts that such events are harmful for the European economy. Therefore, parity of the dollar and the euro has become even closer. On Wednesday, the euro was trading at 1.0665 to the dollar.

According to AA Deans Advisors adviser Alison Deans, media focusing on possibility of new terrorist attacks will affect consumer and corporate behavior not only in Europe but also in America.

- I think there is some risk of recession in the US, if we see these topics in the news. I think people are afraid. Uncertainty and fear are not a very positive factor for the total expenditure growth, as well as for people who are forced to take the risk of investing.

As a result, next year consumer sector companies may face a slowdown in profit growth.

source: cnbc.com