At What Cost

Written by Kiran Yadav | Updated: Jun 28 2009, 06:19am hrs
Flu
It is all in the genes they say. How else would a mixture of genes from human, avian and swine influenzas mutate in such a rapid succession that the World Health Organisation is forced to raise the level of influenza pandemic alert from phase 5 to phase 6 Raising the level of pandemic alert translates into much more than is visible to the naked eye. It goes beyond the face masks which, it may not be an exagerration to state, has come to be the metaphorical representation of Swine Flu. Just like the image of birds being culled was for Avian!

In real terms the pandemic status means a loss a cost to the world economy. According to Impact of Swine Flu, a Report compiled by Oxford Economics, world GDP would be cut by around $2.5 trillion in the six months of the pandemic, or 3.5% of 2009 GDP . The estimates have been arrived at using historical benchmarks of previous flu pandemics and of the SARS episode. Most of the economic cost would be accounted for by cuts to non-essential goods and services as people stay away from shopping centers, restaurants, cinemas and other crowded places, says Marie Diron, Senior Economist with Oxford Economics. The economic recession, she says, will actually come into play after the pandemic is over. In an otherwise strong growth environment, we would expect to see a rapid catch-up as pent-up demand is realised. This is what was observed after the Avian Flu epidemic in Asia. But, in the current circumstances, catch-up is likely to be slower. So much so that the world economy may even fall into deflation.

Projections apart, a lot has already been lost. According to the World Travel & Tourism Council, the contribution of travel and tourism to Mexicos GDP was expected to rise from 13.3% in 2009 to 14.8% by 2019. In the wake of the current pandemic those targets must have definitely come under review. Sylvie Latre, Director, Mexico Boutique Hotels, blames erroneous media reporting more than the flu for the damage caused to the hospitality industry. Travel has gone down by as much as 70% and this has put thousands of people out of work. Rate wars are fierce and the competition is tough, says Latre. In a bid for survival, Latre and her counterparts are focussing on the domestic market. When fear is keeping people from travelling, even the best offers go unnoticed. Sadly, travellers are now expecting five-star service with one-star rates, she says. She is hopeful of recovery, but not before the the last quarter of 2010.

Aviation is among the sectors hardest hit by the epidemic. Several airlines are reported to have stopped flying to Mexico. According to estimates by International Air Transport Association (IATA), airline losses worldwide may total $9 billion in 2009, as the outbreak of Swine Flu compounds the effects of the recession. Rajeev B Batra, Head of Transport Advisory Services, Aviation, KPMG sees Indias preparedness as commendable. When SARS struck there was a complete panic. However, this time round the Indian airports were well equipped for screening even before Swine Flu was declared a pandemic. Even for rest of the world the reaction time was much quicker. Having returned from US recently, Batra is counting on personal experience too while making that statement. Dr Vineet Datta, International SOS (ISOS) cannot agree more. Given that only 320 out of 460 suspected cases in India were self-reported and not picked at airport screening points proves that people are well aware in terms of communique, he says. However he is concerned about the rapidly mutating virus and its potentail to spread. From one day before you had any symptoms to seven days after the symptoms have started, the virus can easily spread. Estimate the number of people who may thus get infected in office even before that one sole case is reported. But are the corporate houses preparedA survey done by ISOS in Hong Kong indicates not. It found only 27% MNCs agreeing to have a pandemic plan in place. In this context Datta hints at a absenteeism rate that can go up to 50%!

Quite a reason why Roberta Witty, Research VP, Gartner Research feels organisations should have their pandemic plans in place. Especially the ones in the southern hemisphere, because the winter is just setting in.

Not all hope has been lost though, not even in Mexico. Consider Tata Consultancy Services (TCS) that opened its third global delivery centre in Queretaro, expecting to hire 500 professionals during the current fiscal in Mexico. Will that be easy though Thats something TCS doesnt want to comment on.

Well, time will tell us that. As also how soon the $1.3 billion stimulus package announced by the Mexican government will wipe of the damage of the virus .

The Spanish Flu

The Spanish flu of 1918-19 was by far the most lethal influenza pandemic of the 20th century. According to WHO estimates, it infected about one-quarter of the global population and took the lives of more than 40 million peopleabout 2% of the global population at the time, and more people than died in WWI. This renders the Spanish flu the third most deadly pandemic on record, surpassed only by the plague pandemics of the 6th and 14th centuries. One unusual feature of the Spanish flu was that it killed not only the very young and the very old, but also adults in the prime years with above-average frequency. Information on the economic impact of the Spanish flu is limited. According to data available for the US, both industrial production and the business activity index dipped at the height of the epidemic in October 1918. However, according to a recent study by the Canadian Department of Finance this decline point to an annual output loss of only 0.4%. Other indicators point to temporary and modest reductions in passenger rail transport and retail sales. The Spanish flu struck when the US economy was on a war footing. There may have been considerable social pressure on workers to stay at work, and the lack of a formal safety net may have threatened workers with high financial costs in case of absenteeism from the workplace.

Avian Flu

Health experts got particularly concerned about the strain of the virus (H5N1) in 1997. This strain spread quickly in bird populations, caused high mortality among poultry, and occasionally infected humans, with about half of the cases proving fatal. The continuing outbreaks that began in late 2003 and early 2004 have been disastrous for the poultry industry in the region; by mid-2005, more than 140 million birds had died or been destroyed and losses to the poultry industry are estimated to be in excess of US$10 billion. Ten Asian countries have had some sort of outbreak of HPAI, with around 140 million birds estimated to have been culled in the region as a whole. The direct economic costs of the outbreaks have been estimated at more than US$10 billion. In Vietnam, one of the most seriously affected countries, some 44 million birds or 17% of the total population of poultry, were culled at an estimated cost of US$120 million (0.3% of GDP).

SARS

There were approximately 800 deaths and thus no discernible impact on output but actual economic losses were estimated at 0.5% of annual East Asian GDP in 2003, concentrated in the second quarter of the year, when there was a much sharper loss of around 2% of quarterly GDP. (Note that a 2% loss of global GDP during an influenza pandemic would represent around $800 billion per year). Why such a severe economic loss Given the spread of the disease through droplet transmission, people tried to minimize face-to-face interactions. The result was a severe demand shock for services sectors such as tourism, mass transportation, retail sales, hotels and restaurants. Business costs no doubt also increased due to workplace absenteeism, disruption of production processes and shifts to more costly procedures. There was 75% in air travel to Hong Kong during the SARS epidemic and an average decline of 50-60% during the four-month period the outbreak was active. Retail sales declined by 15% at the peak.

Source: Evaluating the Economic Consequences of Avian Influenza (2008), IMF; The Global Economic and Financial Impact of an Avain Flu Pandemic and the Role of the IMF, 2006; World Bank