The WHO has designated swine flu an “imminent” pandemic, and raised its alert to a level 5 out of a possible 6. The World Bank guesstimates the cost of a severe pandemic at 4.8% of world GDP (yikes!). Yet the US had a very nice day for equity investors yesterday, and the Japanese stockmarket is up handsomely as of this hour. What gives?
The usually dour Ambrose-Evans-Pritchard argues yes, in reporting that is less apocalyptic than his normal style, argues that investors are underestimating the possible repercussions:
Over the last couple of days I have been deluged by notes from City analysts and economists suggesting that H1N1 avian-swine flu poses no great threat to the global economy because the authorities showed during the 2003 SARS epidemic in Asia that outbreaks can be contained.
This is a misreading of the threat we face.
SARS is a coronavirus. It is extremely hard to catch. Just 8,000 people were infected worldwide during the entire epidemic (10pc died).
Today’s H1N1 outbreak is an influenza virus, which is far more contagious.
Dr. Keiji Fukuda, the WHO’s assistant director-general, said it is already too late to stop the spread of the disease. “At this time, containment is not a feasible option.
It is entirely possible that we may see a very mild pandemic. I think we have to be mindful and respectful of the fact that influenza moves in ways we cannot predict.
The worst pandemic of the 20th century occurred in 1918, and it also started out as a relatively mild pandemic that wasn’t very much noticed in most places. Then in time it became a very severe pandemic, one of the most severe infectious disease episodes ever recorded.
Perhaps because so few market players studied science, or have a current link to science, they seem not to realize that the world’s virologists and flu experts are in a state of nail-biting, ashen-faced, fear.
Rob Carnell, chief economist at ING, is one of the exceptions. “We believe fear of infection will lead to drastically altered behaviour. It may be that swine flu does not tip the human fear scale sufficiently, but if it did, with the economy already in tatters, the results could be catastrophic,” he said in a note today.
We may be lucky. The virus may indeed prove mild – like the Hong Kong flu in 1968 – or burn out altogether as it mutates.
The early cases in the US and Canada give hope. So does the apparent fall-off in the fatality rates in Mexico.
But as Dr Fukuda said, nobody can pre-judge the virulence of this pandemic. Least of all the markets.
Mexico City illustrates what can happen. People are avoiding discretionary outings. As the BBC reports:
What was once one of the noisiest, dirtiest, busiest places in the world, has become strangely sterile – a quiet city, where many people wear masks outdoors, and most don’t go out.
In Mexico City alone, the mayor, Marcelo Ebrard, has put the figure at $88m (£59m) a day
But how much will swine flu hit the wider Mexican economy?
Tourism, which represents 8% of Mexico’s gross domestic product (GDP), is the sector which will inevitably be hardest hit.
In the current environment, most people see little incentive to visit Mexico, and plenty of reason to leave.
The Mexican government has lobbied hard behind the scenes to prevent its borders being closed, or any formal quarantine being imposed.
But other governments and airlines are beginning to apply their own restrictions.
Cuba and Argentina have already stopped direct flights to Mexico. France is seeking a formal European ban on flights.
The real cost of swine flu depends on how long this crisis lasts.
UBS bank in Mexico City estimates the crisis could take out 0.2% of annual GDP if it subsides in the next two weeks, or 0.8% of GDP if it goes on for two months.