Heightened political risk in Europe is damping companies' investment plans and fuelling concerns about a global growth slowdown, the head of Europe's largest industrial conglomerate has warned. "My biggest [business] concern is the fall-out of the geopolitical distress," Joe Kaeser, chief executive of Germany's Siemens, said. "We've seen a new quality with the sad events in Paris.
“Investment is about believing, about the future and [when] events like that happen, people will wait,” he added.
His warning was echoed by Pier Carlo Padoan, Italy's finance minister, who said the Paris attacks could do "serious damage" to the euro zone's recovery. "The biggest economic damage from these attacks is on confidence and confidence is a crucial element in this phase. It is indispensable to help countries exit the crisis," Mr Padoan said. "Any elements that undermine confidence are very dangerous."
While initial reaction to the Paris attacks suggested that their effect on business would be muted, Mujtaba Rahman, head of Europe at Eurasia Group, said increased terrorist risk to Europe would weigh negatively on consumer and investor confidence.
“Paris and its aftermath make clear that geopolitics, not economics, will be the deterministic driver of business risk in 2016,” he said. “Although investors have a history of shrugging off geopolitical risk, their ability to do so this time around will be harder.”
According to Gregor Irwin, chief economist at London-based Global Counsel, which advises companies on political risk: "The Paris attacks may well have profound implications for geopolitics and government policies, which will impact on many businesses."
Citi analysts said that although the impact on confidence of the January attacks on Charlie Hebdo and a Jewish supermarket in Paris had not been discernible, it was probable that the recent attacks would have a greater affect.
“The most relevant comparison should be with 9/11 in the US when consumer confidence fell sharply in September and October 2001,” Citi said, “but it is probable that the impact could be more severe this time, especially if there were more attacks and therefore greater disruption to business activity from enhanced border controls.”
Siemens, which has a market capitalisation of €84 billion, is a large investor in the Middle East and Europe. It lost out this year to General Electric of the US in an attempt to acquire the energy business of French industrial group Alstom.
Mr Kaeser said business bosses had a duty to speak out on political issues and show leadership. He "strongly" supported the chief executive of Siemens UK operations, Juergen Maier, who has spoken about the dangers of Britain leaving the EU in the wake of a referendum. – Copyright The Financial Times Limited 2015
