Sucheta Dalal :Bird flu pandemic would spark global downturn: report
Sucheta Dalal

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Bird flu pandemic would spark global downturn: report  

February 16, 2006

Global macroeconomic consequences of pandemic influenza


Bird flu pandemic would spark global downturn: report

By Michael Perry


SYDNEY (Reuters) - A worst-case scenario bird flu pandemic could wipe US$4.4 trillion off global economic output and kill more than 140 million people, according to an Australian report on the macroeconomic fall-out of an influenza pandemic.


The Lowy Institute for International Policy report detailed four scenarios -- mild, moderate, severe and ultra pandemics -- using historical data on previous influenza pandemics and the economic fallout from the SARS crisis in Asia in 2003.


The report by the independent think tank said a pandemic would lead to a fall in the labor force across countries, an increase in the cost of doing business, a shift in consumer preferences away from exposed sectors and a re-evaluation of country risk.


"A massive global economic slowdown occurs in the 'ultra' scenario with over 142.2 million people killed and some economies, particularly in the developing world, shrinking by over 50 percent in 2006," said the report released on Thursday on the institute's Web site


China, India and Indonesia would suffer the biggest national death tolls under both "mild" and "ultra" pandemics, although less developed countries collectively would have the largest number, ranging from 330,000 to 33 million dead.


A mild pandemic, similar to the 1968-69 Hong Kong Flu pandemic, could kill 1.4 million people and cost 0.8 pct of global economic output, or approximately US$330 billion.


A severe pandemic would be on the scale of the 1918-19 Spanish flu, the report said. That pandemic killed between 20 million and 50 million worldwide.


For now, the H5N1 avian flu virus remains hard for humans to catch, but scientists say it is steadily mutating, just like all influenza A viruses do, and could acquire the ability to pass easily among people.


The H5N1 virus is known to have killed 91 people since 2003 when it resurfaced in Asia and has since spread to birds in Europe and in Nigeria. The majority of deaths have been in East Asia.




The report said that like the 10 pandemics recorded over the past three centuries, a bird flu pandemic was most likely to originate in the China/Russia/Asia region.


"The reason for Asia being identified as a likely source of a future pandemic strain is the high density of human population and animal husbandry practices, including close cohabitation with pigs and water fowl," the report says.


Water birds are known reservoirs of avian flu viruses, including H5N1, while pigs can act as a mixing vessel for bird and human flu viruses, leading to a new strain for which humans have no immunity.


The report says the economic costs of a pandemic would vary widely within regions and between countries.


"The composition of the slowdown differs sharply across countries with a major shift of global capital from the affected economies to the less affected safe-haven economies of North America and Europe," it said.


Under an "ultra" scenario, Hong Kong would suffer the biggest economic hit. Its economy would shrink by just over half, followed by the Philippines losing 38 percent of output. Japan would lose 16 percent and the United States about five percent.


"In some places, such as Hong Kong, the economy shrinks by more than 53 percent," the report said. "The large-scale collapse of Asia causes global trade flows to dry up and capital to flow to safe havens in North America and Europe."


Under a "mild" scenario the Phillipines would be economically hit the hardest with a drop of 1.5 percent in economic output, followed by New Zealand and then Hong Kong.


The report said that during a pandemic, equity markets would fall and bond markets would rally to differing degrees across the globe. But it also said monetary policy reponses would also play a key role in how economies respond.


"Those countries that tend to focus on preventing exchange rate changes are coincidentally those countries that experience the largest epidemiological shocks," it said.


"This is particularly true of Hong Kong, which receives the largest shocks and has the most rigid exchange rate regime," it said, referring to the territory's currency being pegged to the U.S. dollar.



-- Sucheta Dalal