Pandemics, Panic, and the Global Economy

This 11-page article appears in the BMO Nesbitt Burns Research Special Report An Investor's Guide to Avian Flu.
In her article Pandemics, Panic, and the Global Economy, Cooper
argues that a global avian influenza pandemic would have "hugely disruptive effects",
with economic impacts that could be comparable to the Great Depression. The pandemic is only part of the threat, with fear and panic causing additional problems. Cooper points out the way in which media and information play a role in the response to a global pandemic

As the story moves to the front pages and headlines of news broadcasts, panic might well ensue. If this is real, waiting for the spread of disease from human to human will be too late. If nothing else, we hope to raise the consciousness of citizens around the world in an effort to support the urgent endeavors of the public health and medical professionals.

She
presents first an overview of the economic impacts that could result from a
global bird flu pandemic, and supports this "grim" picture with
examples from the much smaller scale 2003 SARS outbreak.



Cooper argues that both the disease itself and the resulting panic may cause economic
damage to industries including:

• airline, land and water transportation
• tourism and hospitality
• retail and wholesale trade
• essential imports and exports

She observes that "Certainly there would be winners, such as funeral homes and
other ‘death-related’ businesses, some drug companies and private medical
establishments; but they would be relatively few in number and relatively
small in the economic scheme of things.

"



Specific economic impacts may, according to the author, include

• foreclosures and bankruptcies
• credit restrictions
• large populations unable to work, tightening the labour market
• schools, and possibly nursing homes, closing - forcing more people to take off
  work
• decimation of the insurance industries

Cooper notes that the poorest countries would be hardest hit, with economic
decline in India and China having "devastating effects on the rest of the
world." The economy's current reliance on just-in-time inventory management,
coupled with
transportation interruptions, would lead to empty shelves, and shortages, including
vaccines and medical supplies.



People would shift to a more vegetarian diet, impacting food distribution and
supply chains. Gold prices would rise and stay high, and "the
U.S. dollar and U.S. Treasuries would benefit." Asian governments in need of money might
drive a sell-off in the Treasury market. Interests rates would fall sharply as deflationary
forces took hold and many people would hoard cash. Ciitizens looking for government help will
strain government resources, and civil liberties would likely be curtailed.



The SARS pandemic, even with its relatively low death toll, is presented
as an example of the possible economic impact of a much larger epidemic. During that pandemic, the
affected region is estimated to have lost 5 percentage points of its growth. The
effects on both the local Toronto and broader Canadian economy are outlined, as
well as the more sever impacts on Hong Kong's economy. Among statistics cited,
retail sales in Hong Kong are noted as having dropped "10% to 50%,
depending on the store" while the cinema association reported a 47% decline
in revenue in March 2003.



Cooper, along report co-contributor, Don Coxe, conclude that "that
the economic and societal effects of a
pandemic, even a moderate one, are so severe that businesses and
consumers need to join the medical and scientific community in creating
a crisis prevention and management plan. Investors and business leaders
must be aware of the risks and factor them into their strategic planning."