Terrorist attacks may pose risk to Europe's growth: S&P

A worsening terrorist threat in Western Europe could eventually hamper economic growth in the region, ratings agency Standard & Poor's (S&P) said on Thursday.

The warning follows Friday's attacks on Paris on Friday that left 129 dead and has since led to multiple police raids and arrests in France and Belgium this week.


Military police soldiers patrol the Brussels Airport on November 18, 2015 in Zaventem, eastern Brussels.
Dirk Waem | AFP| Getty Images
Military police soldiers patrol the Brussels Airport on November 18, 2015 in Zaventem, eastern Brussels.

"A surge in terrorism, Islamist or otherwise, is by itself unlikely to affect the sovereign ratings of Western European economies. That said, terrorism could gradually and indirectly hamper economic growth prospects in the region and have potential fiscal consequences for governments," Moritz Kraemer, S&P's sovereign global chief risk officer, said in a report on Thursday.

Attacks orchestrated by the so-called Islamic State have surged recently; in the past month, the militant group is believed to be responsible for attacks in Ankara in Turkey, Egypt's Sinai Peninsula, Beirut in Lebanon and most lately, Paris.

France's national assembly approved a bill to extend the country's state of emergency for three months on Thursday, which gives the state extra powers to confine and search people. French Prime Minister Manuel Valls has warned there is a risk of further attacks, including with chemical weapons, according to media reports.

Kraemer said that the possibility of repeated attacks could depress consumer and investor confidence in Western Europe.

"With fears of further terrorist attacks on the rise, tourism could take a hit not only in Paris but possibly more broadly. Aviation and certain service industries may drag on economic growth as consumers retreat from what they consider exposed and crowded locations of commerce and leisure activities," he said in the report.

"The weak recovery in Europe could become weaker still and have negative implications for fiscal adjustment, employment, and social cohesion."

The Paris attacks have also seen Europe's Schengen Agreement, which allows passport-free travel between 26 European countries, come under question because of security concerns.

However, Kraemer said that policymakers would likely go to great lengths to "prevent lasting damage to what encapsulates the very essence of the EU (European Union)."

"Even in the absence of another attack, if growing border controls became a quasi-permanent feature this could heighten the costs of doing business. Less-permeable borders will impair economic integration and the growth of EU economies. Reducing transaction costs was precisely the motivation behind the creation of the Schengen passport-free travel area, a logical consequence of the common market," he said.

— By CNBC's Katy Barnato. Follow her on Twitter @KatyBarnato.