Examining the economic costs of H1N1

Hi all, this was an interesting article I chanced upon recently on H1N1 and the various economic costs involved in this pandemic. Since this is an issue that has become a topic of increasing public interest, it would also be useful to understand the extent to which it has affected various sectors in the economy, leading to a decrease in the country's GDP.

This article would be relevant in future when we cover more on macroeconomics and learn about international trade and travel. It can be applied to essay questions like : Using relevant economic policies, explain how the swine flu pandemic would affect international trade between Mexico(the epicentre) and other countries.

Happy Reading! XD

Examining the economic costs of H1N1
By Vidal Seegobin

As experts develop a greater understanding of the current influenza A (H1N1) outbreak, economists and business professionals are attempting to wrap their hands around the costs of this epidemic on the world economy.

At this current trajectory the current “swine flu” outbreak will not reach the human toll of the 1918 “Spanish flu” pandemic that killed an estimated 50-100 million people, or even the economic toll of SARS, which caused approximately 8000 confirmed cases but cost the global economy as much as US$ 60 billion. But an increasingly interconnected global market, the very mechanisms that facilitate global travel and supply chains have made the world more vulnerable to pandemics. So when a new pathogen is discovered, countries and citizens can over-react by shutting down these transit lines of commerce, even when science tells them otherwise. Such “solutions” can have staggering costs, often in disproportion to the number of people infected.
Concrete estimates on how much the 2009 outbreak will cost the global economy are difficult to pinpoint. Economic analysts can only provide best guesses on the direct and indirect costs. There are, however, current observable economic impacts directly attributable to influenza A (H1N1) outbreak that we will discuss below.

The Epicenter:
The direct economic costs to Mexico have been quite pronounced. Credit Suisse estimates that for every day of the “swine flu,” Mexico loses approximately $US 150 million. After petroleum exports and remittances from abroad, tourism accounts for approximately 8% of Mexican GDP. Mexican Finance Minister Agustin Carstens said the impact of influenza A (H1N1) had been devastating for tourism and has cost "close to 0.3%" of GDP or US$ 2.3 billion. Banamex, Mexico’s second largest bank, expects the Mexican economy to contract by about 5% for 2009, consistent with a short-lived economic crisis. Additionally, the Mexican peso has suffered significant volatility as currency speculators attempt to gauge whether the outbreak has peaked.
What the economic story cannot tell is the change in the daily life for the average citizen of Mexico City. With most forms of social interactions curtailed, many Mexicans living in a city of over 20 million are simply not consuming. Facing anemic global demand since mid 2008, countries like Mexico are forced to rely on domestic demand to weather the storm. If Mexican consumption and productivity are hampered, they can expect a difficult climb out of the global recession.

International Travel and Trade:
Already six months into a globally synchronized recession, consumer confidence has taken an additional beating amidst fears of a potential pandemic. Oil prices have dropped by 2.7% since the discovery of the new flu strain, and airline stocks have plummeted. Continental Airlines shares dropped by 16% on May 3rd, while United Airlines, Delta Airlines and American Airlines saw declines of around 14%.
Since WWII, the global economy has sustained long-term growth through international trade. In late 2008, when it was clear that Lehman Brothers’ collapse would trigger a global financial meltdown, trade economists warned against protectionism. In the grip of a potential pandemic, however, the ability to veil politically motivated trade diversion under the guise of national health security increases. Import bans may be rooted not in any scientific finding, but instead a desire to protect domestic producers already facing soft global demand and increasing competition.

Misnamed Fears
Despite assurances from health authorities that pig farming and pork products pose no particular risk in the current epidemic, the label “swine flu” allowed some governments to act on politics rather than evidence.
Pig farmers in Alberta, where 200 cases of “swine flu” in pigs have been confirmed, face bans on their exports. As of May 6th, a Canadian pork producer can expect about $1.23/ kg of pork - 7 cents below breakeven price. Reports from the US pork industry indicate that the current outbreak has exacerbated an already pessimistic economic outlook. Pork producers have lost an average of $20 per hog over the last 19 months with average hog prices dropping from $124 a head on April 24 to $118 on April 28. In total, the industry estimates that under current conditions, the industry is losing about $US 2.5 million per day. With the combination of weak demand and import bans in 20 countries, the picture begins to looks increasingly bleak at a point in the season when the pork industry expects its highest profits. Should global concern about influenza A (H1N1) endure, global pork consumers can expect to see higher pork prices as producers raise their margins to offset losses.
Influenza A (H1N1)/”swine flu” fears also take on political overtones where pork consumption has cultural implications, as in the Egyptian government’s decision to cull the nation’s pig population, primarily owned by the Coptic Christian minority.

At the Global and Community Levels
For the US economy at large, it is still hard to ascertain the cost of precaution. As many schools close temporarily, parents must find alternative care or take time off. This affects overall productivity as absenteeism in the workplace increases; not to mention losses faced by private after-school care providers. Furthermore, the extent to which Americans have changed their travel behavior is still unquantifiable. Although the US government cautions against non-essential travel to Mexico, it has not banned the movement of goods or peoples across its shared southern border.
Almost assuredly, future global pandemics of varying virulence will carry hefty price tags. The present situation, unlike SARS, takes place during a global recession. With trade protectionism always a concern, outbreaks of pathogens like influenza A (H1N1) have the potential to critically derail global trade and investment. As such, it becomes increasingly clear that world economic activities from Jakarta to Cairo are increasingly dependent on managing global risks. Moreover, political-economic analysis demonstrates the need for concerted preparation, scientific education and information dissemination to prevent trends of unnecessary and often costly knee-jerk reactions. Viewed in this light, global health security and the capacity to respond to crises in a proportional and informed manner are vital to long -term consumer confidence and support of a functioning global economy.

Source: http://www.stimson.org/globalhealth/?SN=GH200905112048

Cheryl