Philippe Ledent, Senior Economist at ING, suggests that after yesterday’s terrorist attacks in Brussels the country is in a state of shock and unfortunately, the economy isn’t fully resilient to such events, and activity growth could be affected. Key Quotes “It is difficult to gauge the economic impact of events such as terrorist attacks. That said, such an impact is a reality. We present some initial assessments: - In November, the direct impact of Brussels’ lockdown was estimated at 0.04% of Belgian annual GDP by the Federation of Enterprises in Belgium. Additionally, there was probably extended impact focused on Brussels during the weeks after the lockdown, because of the cancellation of events, congresses etc... A total impact of €350-400m has been estimated. - Having said that, some spending was just postponed or took place elsewhere in Belgium. This means that the net impact has been probably limited to 0.025pp of annual GDP growth. Sectors most affected were hotels and restaurants, events (Brussels is an important centre for international conferences), transport and retail trade. These sectors represent more than 7% of value added in Belgium. - This impact can probably be used as a reference for yesterday’s event, with one big difference: in November, the lockdown was “only” induced by fear of a terrorist attack. Yesterday, there were several terrorist attacks with a large human toll. So it looks reasonable to expect the short term impact to be much higher than in November. - There might also be a longer term impact. Studies show that a long lasting terrorist threat can have a significant impact on consumption and investment, affecting many more sectors of the economy. This type of impact on GDP can be higher than the short term impact of an attack itself. Let’s not forget the psychological trauma that such a situation can generate on a whole population. This psychological factor is enhanced by the fact that Belgium is a small country: Given the number of commuters to Brussels from all over the country, in a sense everybody has been close to the horrible events. There might also be a reputational effect deterring foreign investors. - Previous experiences in Madrid and London have shown that one shouldn’t overestimate this impact either, as the population learns to cope with the situation. Moreover, this impact mainly focused on the private sector could be partly compensated by the increase of public spending in terms of defence, police and justice, more and more unavoidable in the current context. - To conclude, Belgian GDP growth could be negatively affected by more than what has been computed after November’s lockdown, at least in the short run. That is why, after a deeper analysis of the situation, we intend to revise downward our GDP growth forecast for Belgium by -0.1pp.” For more information, read our latest forex news.