Swine flu fears threatens to lay economy low as signs of recovery sprout

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This article was published 27/04/2009 (6008 days ago), so information in it may no longer be current.

OTTAWA – Nobody wants to set off alarm bells that will spread panic, but governments and experts are watching closely the spread of the swine flu outbreak for its potential to lay the global economy low.

The outbreak from Mexico comes at a most in-opportune time for fragile economies, posing a new and potentially devastating threat just as early signs of recovery are sprouting.

Trying to calm fears, U.S. President Barack Obama said Tuesday the outbreak was a concern but “not a cause for alarm,” although he warned of the very real possibility of deaths occurring in the United States.

In Canada, where six cases have been confirmed, Finance Minister Jim Flaherty said it was too early to know whether the health issue will impact the economy.

Still, the concern was registered in a minor sell-off on North American stock markets pricing in albeit low risk of a full-blown pandemic.

Economists say it is not a matter of whether, but how much the economy of the world, including Canada, will be impacted by the swine flu outbreak.

“It’s definitely nothing to play down lightly,” said economist Douglas Porter of BMO Capital Markets. “It’s not as if the world economy didn’t have enough challenges. This threatens to exacerbate what is already the most serious downturn of the post-war period.”

The first casualty will be the tourism sector and its associated industries, including airlines.

Transat A.T. Inc., a Montreal-based tourism company which offers flights to Mexico, saw its shares fall about 10 per cent on Monday.

But also hit will be consumer goods, retail sales, sporting events, theatres, conventions, restaurants – almost any activity involving the congregation of people – and if the epidemic becomes widespread enough, output could suffer as workers take to their sick beds.

Already, travel advisories have gone out against Mexico from many countries, although at the moment not from Canada. But in a twist, India and Malaysia issued a travel advisories against Canada on the basis of the six known cases.

With or without further cautionary advisories, Canada’s tour industry will feel the pinch, says a travel industry analyst with the Conference Board of Canada.

David Redekop says the natural reaction of travellers when they hear of possible health risks in foreign countries is to consider delaying or cancelling non-essential visits until the medical issue clears.

This happened during the 2003 SARS scare. Not only did fewer Canadians travel to Asia, where the epidemic began and was most widespread, but pleasure trips into Canada also declined after the outbreak spread to Toronto.

Pleasure trips from the United States declined by 16 per cent in the third quarter of 2003, and trips from overseas plunged 28 per cent, said the Conference Board.

“People will be saying, ‘I’m not going to travel now, I’ll wait to see what happens because I don’t want to be out of the country during a pandemic,’ ” Redekop explained.

While concerns about travel may be reasonable, irrational fear can also sideswipe sectors of the economy that have no connection to the outbreak.

Bank of Montreal chief economist Sherry Cooper noted that even though swine flu cannot be contracted from eating port, prices for hogs have already started falling, as have stock prices of meat-processing companies.

“If the scare continues and broadens, the entertainment industry and non-essential service providers such as restaurants, theme parks and movie theatres will see a decline in business,” she wrote in a note to clients.

Although not an exact correlation, the SARS epidemic remains the most recent guidepost of what could occur if the swine flu becomes a more serious health concern. There is no recent example of the damage that could result from full-fledged and deadly pandemic.

In the spring of 2003, travel into Toronto plummeted, conventions were cancelled, restaurants emptied as fear outraced the relative risk of exposure, which was minimal. The spell might have been broken when the Rolling Stones staged a concert to assure the world that Toronto was indeed a safe city.

The Conference Board estimated at the time the loss to the economy at $1.5 billion – or 0.15 per cent of gross domestic product – although there is no official data. Statistics Canada said it did not conduct a study to determine the impact of SARS.

While that blip had little lasting impact on the Canadian economy as a whole, it was also a time when Canada and the world were experiencing robust and sustained growth.

Today, the economy remains in sharp decline if not a free-fall, with output likely having contracted by about seven per cent in the first quarter, according to the Bank of Canada.

“Metaphorically, we could say that the economy, which has been freefalling, has just opened its parachute to slow its descent,” said Yves St-Maurice of Montreal-based Desjardins Group said of the few encouraging indicators.

Still, he said signs of revival are too few, and too tiny to constitute a “trend” or instill confidence.

That’s why any threat of more trouble, particularly something as open-ended as a possible pandemic, could send the economy tumbling again, he explained.