Terrorism Scares Away the Tourists Europe Was Counting On

PARIS — The shocks have come one after another: Islamic State killings of civilians in Brussels and Nice. A deadly outburst of terrorism in Germany. A fresh terror-linked atrocity in a small French town. Warnings abound that more may be on the way.

The surge of attacks in Europe has raised questions over whether a potentially durable new threat to stability is settling in. The political challenges for Europe’s leaders are stark, and the impact on the region’s economy may be just as profound.

“We are experiencing a structural change, a phenomenon of war on our doorstep that didn’t exist before,” said Georges Panayotis, the president of the MKG Group, a tourism consulting company based in Paris. “If it’s not resolved, the problem will continue.”

The effects of that shift on businesses, large and small, have been deep.

At the Mont-Saint-Michel, a spectacular medieval abbey that is one of France’s top tourist destinations, business at the Sodetour Group, a chain of local hotels and restaurants, slumped by up to 70 percent for months after the Nov. 13 terrorist attacks in Paris. It has never fully recovered.

American and Japanese visitors in particular canceled reservations, even though the site, perched on an isolated rock off the northwest coast of Normandy, is far from Paris. Gilles Gohier, the chief executive, said he had to tell nearly a third of his 230 employees to go home for four months, and temporarily shut half of his five hotels and four restaurants. Since then, he has eliminated 17 positions and is hiring new employees only on temporary contracts.

Business had just started to revive when the Bastille Day massacre in Nice happened. Cancellations jumped by 20 percent and were expected to rise further after this week’s killing of a priest in Rouen, located in lower Normandy, an attack carried out by militants claiming allegiance to the Islamic State.

“What happened in Rouen shows that it could happen here, or anywhere,” Mr. Gohier said. “This makes it impossible to plan for business in the future,” he added.

All of that has hit the European economy in one of its most vital sectors, tourism, just as a tenuous recovery was starting to take hold.

This year, growth in the 19 countries that use the euro returned to levels not seen since the 2008 financial crisis. On Friday, the European Union reported that the momentum slowed in the second quarter, as the economy advanced just 0.3 percent from April to June, down from 0.6 percent in the previous quarter. France slid back into stagnation with zero growth in the three months to June from the previous quarter.

Uncertainty has multiplied in recent months as terrorist assaults have become more frequent and widespread. Investors have not pulled away. But visitors are rethinking Europe as a central travel destination, and the tourism industry, which accounts for 10 percent of economic activity in the European Union, has begun to feel the sting.

European governments, meanwhile, are spending hundreds of billions of euros on enhanced domestic security and operations against the Islamic State, even as Brussels pressures countries to cut deficits.

France, the European Union’s third-largest economy after Britain and Germany, was already struggling to emerge from a long period of stagnation and high unemployment. France is the most visited country in Europe, attracting more than 84 million tourists last year, and economists had forecast a long-awaited uptick in growth for 2016. After the Nov. 13 terrorist attacks, the momentum slowed, and a slump in foreign tourism had only recently started to reverse.

But when further Islamic State-inspired attacks were carried out in Europe, the impact was magnified.

In France, growth in nightly hotel room bookings after the Paris attacks fell to single digits from 20 percent. After the Brussels bombings, bookings went negative, and after Nice, bookings fell by double digits, said Mark Okerstrom, the chief financial officer of Expedia, a global travel website.

“We haven’t seen a bounceback,” he said. “What we don’t know for certain is whether there’s an overall dampening impact to global travel, or to Europe specifically.”

At Paris Plage, a makeshift beach erected along the Seine, a dozen armed police officers guarded an entry checkpoint on a recent day. Army troops marched past families playing in the sand and half-empty activity points along the river. The patrols, which cost taxpayers about 1 million euros, or $1.1 million, a day, will add to an already mounting bill after France pledged to spend €816 million this year to reinforce security.

The ripple effect has been tangible.

Rental apartments in Paris and Nice sat empty after people canceled plans to visit France, said Adrian Leeds, the head of the Adrian Leeds Group, a French real estate agency with properties in both cities. And clients who had been thinking of moving to France have suspended their property searches.

“It’s really affected things,” she said. “But people will come back when things have settled down.”

The terrorism threat adds another layer of complexity in a region already grappling with a large influx of migrants and the repercussions of Britain’s vote last month to leave the European Union.

Finance ministers from the world’s 20 largest economies, meeting last week in China, cited geopolitical conflicts and terrorism as growing threats to the global economy. “The world has already known terrorist attacks,” said the French finance minister, Michel Sapin.

“But today, the frequency of the attacks is creating a new situation of uncertainty,” with economic consequences, he added.

In Belgium, where Islamic State attackers bombed the Brussels airport and subway in March, killing 32 people, the economy has already suffered a nearly €1 billion loss in business and tax revenue, the government said this week. The biggest hits were to hotels, restaurants and tourism. Concerts, carnivals and sporting events were canceled, sapping revenue from the entertainment industry.

Germany’s government acknowledged last week that the country had become a target of the Islamic State after a spate of assaults against civilians on a trainat a shopping mall and at a concert. Travel companies are fielding questions over whether Europe’s largest economy is still safe, and economists said that consumption spending, a motor of growth, could decline if consumers started going out less.

All that may turn travelers away from Europe’s largest economies and toward calmer places like Spain, Greece or Scandinavia.

That may not stop terrorism concerns from hitting the industries that make travel possible. Air France-KLM and Lufthansa, two of Europe’s largest air carriers, recently slashed their profit forecasts for the year, citing repeated terrorist attacks in Europe as deterring tourists and business executives from traveling.

The attacks have also taken a toll on the luxury industry, which relies heavily on foreign tourists, especially from Asia, for European sales. Leading brands like Hermès, Louis Vuitton and Prada have reported slumping sales as high-spending tourists stay away.

On a recent morning, a handful of visitors flitted through Louis Vuitton’s mammoth flagship store on the Champs-Élysées, a contrast to previous years, when the summer tourist season would see the shop buzzing with customers. This week, LVMH Moët Hennessy Louis Vuitton reported flat sales in the first half of the year, citing a falloff in European tourism after the attacks.

“We do not see any improvement in tourist traffic in France, and we will not see one while we are in a state of emergency, which prevents customers from coming,” said Axel Dumas, chief executive of Hermès, the maker of €10,000 Birkin bags.

For Mr. Gohier, whose hotels and restaurants face the Mont-Saint-Michel, that can only be bad news for a smaller business like his.

“When you lose business, it has an economic impact,” he said. “The terrorists want to create maximum damage.”

Source http://mobile.nytimes.com/2016/07/30/business/international/europe-economy-gdp-terrorism.html?partner=rss&emc=rss&smid=tw-nytimes&smtyp=cur&referer=https://t.co/A2F93fv9RD


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