Saturday, October 01, 2005
Will the global economy catch bird flu?
Posted by David Smith at 08:00 PM
Category: David Smith' s magazine articles

When it comes to “shocks” that could undermine the world economy most recent attention, understandably, has been on the oil price. As the price of crude hit new records over the summer questions were asked about the ability of the big economies to grow through it, particularly given the grim past relationship between oil and past global recessions.

All the caveats this time are justified. The advanced economies are less sensitive to oil than they were, thanks to the decline of big energy-using heavy industries. Those countries that still are highly energy-intensive, like China, genuinely do have enough momentum to grow through it.

Oil will have an effect. World economic growth will be weaker next year as a result of the rise in prices we have seen so far. If global growth was going to be 3.5 to 4 per cent, it will probably now be nearer to 2.5 to 3 per cent. That, however, is a long way, from recession.

Could something other than oil creep up on us and provide a recession-inducing shock to the world economy? For some time health experts have been warning that the world is overdue another major influenza pandemic, following the 20th century’s notable episodes.

Most people are familiar with the Spanish flu pandemic of 1918-19, easily the most serious, which killed an estimated 50 million people worldwide, including half a million in America. The worldwide death toll, famously, was roughly three times the number of military and civilian deaths in the First World War.

Other notable 20th century pandemics, the Asian flu of 1957-58 and the Hong Kong flu of 1968-69, were less serious but still represented major public health challenges. In America, for which detailed data is available, Asian flu killed 70,000, Hong Kong flu 30,000.

Are we due for the next big one? According to the World Health Organisation, influenza A type H5N1, usually known as bird flu or avian flu, is endemic among birds and animals in Asia. In August, in response to its spread to migratory birds in Russia, the Dutch government instructed all farmers to take their chickens indoors, to help protect them from the disease. Other European governments also took preventative steps.

As far is as known, more than 100 humans in Asia have contracted the disease, and half of these have died as a result. As far as is also known at time of writing, all caught it from animals or birds, rather than in human-to-human transmission. A degree of scepticism is, however, in order; reporting and disclosure standards in Vietnam, North Korea and China may not be what they should be, as was discovered in the case of SARS (severe acute respiratory syndrome) two years ago.

Already governments are stockpiling vaccine for use against avian flu. Significantly perhaps, because there will not be enough to go around, the priority in any vaccination programme in Britain and elsewhere will be key government workers, including some politicians, those working in essential services and others concerned with maintaining the basics of society. The implication is that if the flu strikes in a big way, the economy will be effectively wound down to operate on a skeleton basis. Even that may be easier said than done.

As one WHO official put it, talking about what could happen on a global scale: “Billions would fall sick; billions more would be too afraid to go to work, leading to a collapse of essential services.” This is not, it should be emphasised, the usual kind of winter flu we are familiar with in Britain.

All this suggests that the economic impact could be huge. According to a recent report by BMO Nesbitt Burns, a Canadian stockbroking firm, this could indeed be the case. The headlines about its report, An Investor’s Guide to Avian Flu, suggested a publicity-grabbing exercise but this is not so. It is a sober, well-researched exercise. And Canada, which was hit hard by the SARS outbreak in Toronto in 2003, is perhaps more attuned to the dangers than we tend to be in Britain.

Dr Sherry Cooper, the firm’s chief economist, says that the prospect would be of a vicious circle of declining activity. In the case of SARS, Hong Kong’s economic growth rate was halved and Ontario suffered 28,000 lost tourism jobs and a £1 billion drop in revenue. A mass outbreak of avian flu in humans would dwarf these effects.

She writes: “Businesses would voluntarily quarantine a meaningful proportion of their essential staff at remote locations to have a stand-by team in case of emergency. Large cities with dense populations in residential, shopping and office space would be most harshly impacted. People would shun high-rise office buildings and large condos, not because of terrorism but instead because of nature’s microbial attack. Stockpiling of basis food, drug, water, energy and safety supplies would initial lead to shortages and skyrocketing prices.

“In relatively short order, the deceleration of almost all non-essential economic activity would trigger a rampant decline in spending. Then, deflation and high levels of ‘involuntary’ unemployment would set in. Households would be unable to make their mortgage and credit card payments. Businesses, as well, would default on their debt.”

The really scary thing about a global flu pandemic, of course, is that we have a global economy. The interconnectedness of the world would multiply the vulnerability of countries to the economic effects of any pandemic.

Cooper likens the possible effect, in terms of hitting world trade and the movement of people, to America’s Smoot-Hawley Tariff of 1930, notorious for helping plunge the global economy into slump. Indeed, as she puts it: “Its economic impact could be comparable, at least for a short time, to the Great Depression of the 1930s.” China and India, the two fast-growing emerging giants of the world economy, would be particularly hard hit because of the close proximity of many people to their animals and birds in these countries.

It may never happen. Experts have been warning of a global flu pandemic for a long time; one day they will be right but not necessarily yet. The economic effects of SARS, it is fair to say, were widely predicted to be worse than they turned out to be.

Even though, this is one to be watched closely. We tend to look for the economic dangers emanating from economic sources. Sometimes those dangers come from elsewhere. And the potential dangers from avian flu are not to be sneezed at.

From Business Voice, October 2005

Comments