The recent events have drawn our attention back to the effects of violence and terrorism on the financial markets and the real economy. We have examined two scenarios: the first with a short-term deterioration and increased uncertainty affecting companies’ strategies, the second with an escalation of the violence extended to potential areas of interest for exports and investments.
Terrorism and political violence have an estimated global cost of USD 64 billion, equal to the GDP of Kenya. Nonetheless, their impact in financial terms is not significant: comparing the indices of the European and American stock exchanges after the main terrorist attacks from 11 September onward, the effect on the financial markets has been diminishing. In a scenario of non-escalation, the effects on the real economy would be relatively limited, but they might undermine public confidence and, with it, the ability to seize important business opportunities.
In case of escalation, on the other hand, the picture might produce a “flash flood”. The shortage of international reserves in some countries, the declining standard of personal safety, and the raising operational costs might significantly affect several traditional markets for Italian exports. A reduced flow of strong currency from tourism, for example, might create additional difficulties for Egypt, weakening its credit rating and making it difficult for local companies to secure loans.
The Mediterranean rim is the area most exposed to events of political violence, starting with North Africa and the Middle East (with risk ratings of 71/100 and 54/100 respectively), followed by Sub-Saharan Africa (57/100). It will be even more important to have adequate coverage in these markets, from individual transactions to long-term investments.
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