Slide 1: Subject: Economics
Topic: Current Economic Issues
Author: Padmavathi, ClassOf1 Economics Subject Matter Expert.
What does Swine Flu Cost the Global Economy?
It is well known that the global meltdown has pushed world economies into a frail state. Recently, the recovery phases of economies have been highly threatened by the wide spread pandemic - Swine flu.
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After its outbreak in Mexico by March 2009, the virus is spreading globally and continues to claim more deaths. As per the recent report, this pandemic has spread to around 160 countries. In light of this scenario, let us evaluate whether this pandemic adversely affects economic activities and worsens GDP growth. The Mexican economy, being a prime victim of the flu experienced a drastic fall in its overall economic activities. Trade and the tourism sectors completely crashed. Many countries like U.S, U.K, China, and Russia banned Mexican imports, particularly pork products. The global meat consumption declined and thereby reduces the demand for animal feeds. So, the meat and animal feed industries went into a decline. Travel and tourism industries experienced huge losses due to cancellation and postponement of trips. Due to fear of infections, people are staying away from crowded places like shopping malls, restaurants, cinema theatres, railway stations etc. Therefore, severely infected countries experienced a dramatic fall in the retail sales already ruined by recession. Most of the Mexican factories, schools and many other non-
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Slide 2: Subject: Economics
Topic: Current Economic Issues
essential public offices were closed for about a week during the month of May. Workers were asked to stay away from work and this caused a reduction in industrial output. Ultimately the global supply chain has been interrupted temporarily. Further prevailing uncertainties, waning global demand, decline in consumer confidence has induced business firms to postpone their investment ventures. So, the financial market is affected by lower share prices and has increased the risk of deflation. On the whole, the economic losses of this flu could be categorized in terms of a fall in output, trade & tourism, higher mortality, illness, absenteeism, and avoidance behaviour. However, the financial and economical costs of this pandemic depend on the pace of its spread. But the pharmaceuticals and drug companies are blooming because of the increase in the demand for anti viral medicines. Similarly, the mask companies are witnessing a surge in demand, as these are mandatory to control the pace of spread. The occurrence of Severe Acute Respiratory Syndrome (SARS) in China, Hong Kong, Taiwan and Singapore by 2003 caused an output loss about 0.5-2.0% of GDP. By considering the recent destructions caused by the SARS and other flu pandemics, the World Bank has estimated that over the six months of the pandemic, world GDP would fall by 3.5% in 2009. The loss to the U.S economy was estimated to be around 5% of 2009 GDP while the Euro zone and the UK would also lose around 3% of 2009 GDP (shown in Fig 1). Now the pandemic is spreading in many Asian countries which are characterized by dense population and high poverty. So, these countries are expected to be hit harder.
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Slide 3: Subject: Economics
Topic: Current Economic Issues
Fig - 1
To conclude, even though the economic causalities of swine flu are found to be temporary, the outbreak of this disease has a considerable macroeconomic impact on world economies. The vicious cycle generated by the pandemic could postpone the robust recovery from recession. Since the pandemic has occurred just when economies have started to recover, it implies that the impact is long lasting and thus calls for a contingency plan.
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Slide 4: Subject: Economics
Topic: Current Economic Issues
References: http://www.docstoc.com/docs/5678750/Economic-Effects-Of-Swine-Flu http://news.bbc.co.uk/2/hi/business/8020610.stm http://www.oxfordeconomics.com/free/pdfs/swineflu(jun09).pdf http://www.washingtonpost.com/wpdyn/content/article/2009/04/29/AR2009042904650_2.html?sid=ST2009042904966
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