The Contagious Economics of Swine Flu

August 15th, 2009

I had an appointment with the doctor today. I arrived at an empty waiting room. I usually wait for anything up to half an hour. “What gives, Doc? No one gets sick in summer?”

“Exactly,” he said. “It’s too hot to go out. Now I’m counting in Swine Flu to get me through these few months.” The doctor’s right. Swine Flu equals money, either money earned or money spent and lost.

Forecasts by informed bodies suggest that this current Swine Flu really could reach pandemic proportions, with up to 100,000 cases a day. The report assumes that infections will ultimately reach 50 per cent, with a mortality rate of 0.4 per cent. These are staggering figures. Imagine a small country of 6 million. 3 million will be infected and 12,000 will die. If that country is not economically stable it could founder completely.

The money earned column is clear. It is the doctors, drug manufacturers, syringe makers, hospitals and the nursing community who will benefit to varying degrees; the pharmacists will do well and undertakers may collect some of the spin-off. Article writers for the press will have a ball producing screeds of paper with forecasts of gloom and doom.

On the money lost side the effects are also fairly clear. The first category is that of ‘Lost Output’. Workers who contact the flu will take time off, probably only after they have infected many of their colleagues. Schools, colleges and other large public bodies may even decide to close down in an attempt to contain the spread of the illness. The eventual result of this lost output is reduction in incomes and down the line, lost GDP.

The second major category of losses is that of ‘Lower Demand’. It starts with luxury spending such as international travel and tourism. If you are going to get the flu it’s better to catch it at home. Restaurants will be hit and so will the movie houses and theaters; in fact all public gathering places will suffer. This was very evident in the SARS epidemic a few years ago.

There will be a loss of confidence among the investing community who will move into ‘hold mode’ until the pandemic passes. In the same way government spending may drop and affect public finances. Ernst and Young, the international accounting group has already reported on the impact of a relatively modest spread of swine flue. They are talking about output falling by a catastrophic 7.5 per cent.

It is impossible to quantify the economic effects of swine flu, it is a ‘new’ strain and relatively unknown. There are fatalities every year from one kind of flu or another. Sections of the population are high risk in any flu epidemic. Is Swine Flu replacing other kinds of flu or is it in addition to the regular flu’s that go around every year?

This time the world is better prepared for a flu epidemic that ever before. We have more effective drugs. We are going to make it through this one!

This entry was posted on Saturday, August 15th, 2009 at 4:47 am and is filed under Economy, Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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