How Do World Markets React To Terror Attacks?

Terrorism in recent years has become frighteningly common, impacting not only global morale, but also the economy.While the economic repercussions are certainly not the most important ones, anyone relying on market movements to earn their living may be running scared, not only from potential security risks, but from potential economic fallout. Whether we want to admit it or not, these events do have financial repercussions on both the specific country wherein the attack occurred and also the global marketplace, with dozens of industries affected.And while many businesses are left to suffer in silence, it’s worth taking a broader look at just how terrorism impacts the economy, both locally and globally. 

September 11 – A Case of Firsts

The carnage following September 11 was so severe, so heart-wrenching and so distressing that few could think about little more than the families affected.But in reality, the economic destruction was immense, certainly in the immediate vicinity, but also throughout the world.In the wake of September 11, New York stock exchanges were closed for a week, requiring the Federal Reserve to inject $100 billion in liquidity a day to help avoid a financial crisis.The price of gold skyrocketed from $215.50 to $287 an ounce and the price of oil rose significantly as well while to US dollar plummeted against all of its major trading partners.Following September 11 global stock markets crashed, as painfully as 9.2% in Brazil, 8.5% in Germany and 5.7% on the London Stock Exchange (not to mention a handful of other serious declines).

Insurance companies were devastated by the imposed payouts, and publically-traded companies lost millions not only in payouts, but also in shares. Locally, hundreds of businesses were forced to close, hundreds of thousands of jobs were lost and entire industries (hotels, tourism and aviation, for example) were extremely hard-hit.On the micro level, families had lost their primary wage-earners, creating an entirely new socio-economic challenge moving forward.However, macroeconomists are quick to point out that this picture of economic destruction was short lived.In fact, the markets rallied for six straight months following September 11.