Financial Times

Swine flu outbreak dampens economic recovery

By Dinesh Ranasinghe

Though the economy is seen bottoming out of the recession, the swine flu outbreak threatens to peg the economy to an extended period of recession than anticipated. As the reported number of fatalities increase, the issue may disrupt social and economic stability when the economy could least afford it. Whist monetary authorities and governments are challenged with the weak economic conditions their tasks are put to the sword by the outbreak of the pandemic.


An Indian commuter wears a protective mask as she waits for a train in Mumbai. Indian authorities ordered all schools and colleges in Mumbai to shut for a week over fears about the spread of swine flu. AFP

History repeats
The SARS outbreak in 2003 was a short-lived one which lasted six months infecting 25 countries. It should be noted that although SARS erupted at a time of relative economic stability it cost the Asia-Pacific region well over $40billion. Further, backed by scientific reasoning analysts say such outbreaks occur every 40-50 years and suggest that another is due at these times as there were plagues soon after the First World War and in the 1960s.

Absenteeism effect
Organisations around the world would experience absenteeism of key staff for prolonged periods if there is an outbreak. This could either be due to being infected or caring for infected relatives or for just being cautious. 30% to 40% of the population at worst is envisaged to be contracted in some form in the US and EU during autumn 2009 and/or 2010. Whatever the reason, the ultimate result would be the lacklustre continuation of industry and trade.

Tourism drop
Airline and leisure-related institutions are envisaged to be hit hard. Some airlines have suspended flights to and from many red-coded countries such as Mexico and Argentina whilst the renowned German travel group TUI has suspended these countries from their itinerary. Further, in key Australian airports thermal imaging cameras have been set up to detect any suspected cases of swine flu whilst major airlines such as British Airways and Virgin has said that they would turn away any suspected passengers from boarding the aircraft.

Civil disruptions
In many countries, bars, shopping centres, cinemas, and even churches and schools have been closed as a precaution and/or for quarantine action. Media pressures have triggered panic amongst residents and they may be extra cautious before travelling on any public transport or being present at public locations. It is expected the public transport system would crumble in the initial stage of a severe outbreak, which would also have ripple effects across industries.

Desperate precaution
Officials believe around a million people have already contracted swine flu in western nations, but were not reported as they were only mild infections and because people did not seek any medical attention. However, as a desperate precaution, governments (USA, UK) are planning to vaccinate their entire nation in the coming months, even though the vaccine is not conclusive of being safe and effective.

Thriving industries
It is expected that sanitising hand gels, face masks, drug and medicine companies would experience a surge in demand. These are envisaged to be the hot stocks in the next year or so.

Crossing borders
As the virus spreads and new cases emerge around the world it is inevitable that all countries and regions face the risk of an outbreak. Even Sri Lanka will feel the social and/or economic impact as its major trading partners fall.

Statistics
It is feared that the situation may worsen in the western nations with the flu season kicking-in in autumn 2009 and/or 2010. They also stated that hospitals would be overwhelmed with patients and the hospitals might have to be isolated, which is currently an emerging situation in the US and UK. Further, an 80% drop in demand for entertainment, recreation, hospitality and food services, a 67% drop in demand for transportation and warehousing, a 10% drop in agriculture, mining, construction, retail trade, finance is anticipated. On the contrary, a 15% increase is expected in the health and pharmaceutical sectors. Overall, in 2008 the World Bank estimated an outbreak of this nature at worst may cost $3 trillion and result in a 5% drop in world economic activity.

Impact on Sri Lanka
Acting as a hub Sri Lankan authorities should never discount the possibility of a severe outbreak and should take necessary social and economic precautions. In the worst-case scenario if it gets out of hand the repercussions would be the same as mentioned above plus the unanticipated towering healthcare cost the government would have to put up with. Even though Sri Lanka is not directly susceptible to a swine flu outbreak, Sri Lanka is not out of the dark. Sri Lanka being a spec in the global economy is always vulnerable to the worldwide economic tides, especially the impact of her main trading partners USA and EU.

With 24% of exports to the US and 36% to the EU, Sri Lanka should hope that the pandemic and the fear factor dies down soon.

(The writer is a Business Analyst based abroad)


 
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