Roger Bootle of Capital Economics, writing in today's Sunday Telegraph, thinks Bird flu will be a short, sharp shock. He notes that his usual response to such 'crises' is relaxed:
Those readers who have followed my pronouncements over the years on the economic effects of other non-economic events will doubtless feel that they can guess my conclusions. Whether it has been foot and mouth, the Iraq War, the SARS outbreak, Hurricane Katrina or London's victory in the battle to secure the 2012 Olympic Games, my response has been the same - business as usual. But scale alone potentially makes this different.
Bootle notes that the current strains of bird flu are "not necessarily a big deal - so far".
Bird flu has been common in South Asian countries for many years and there has been little economic impact beyond the local poultry industries. ...The immediate concern is that the current strains of bird flu might mutate into a version that can be transmitted easily between humans. This risk does need to be taken seriously.
The World Health Organisation estimates that an avian flu pandemic could kill between 2m and 7m people across the world. ...The Department of Health estimates that if an avian flu pandemic were to hit the UK about 50,000 people would be likely to die. This is a very large number but our chart puts it into perspective. It is less than a tenth of the total annual deaths from all causes and less than half of the deaths from cancer.
His comments on the economic effects of a flu pandemic are over the fold:
Even if only one person were to die from bird flu, it would be a human tragedy and if many thousands die it would be a human disaster, far transcending any economic issues. Nevertheless, there is clearly a potentially large economic impact.
Economics is no respecter of human sensibility. The economic implications are likely to depend on three things: who is affected by the virus, the measures taken to control it, and the wider impact on confidence.
Health problems such as HIV-Aids, which typically affect young people who are active in the workforce, tend to have a much larger economic impact than those such as Sars which mainly affect the long-term sick or the elderly. Any new form of influenza is more likely to fall into the latter category.
Even so, measures to control a pandemic might have implications that are much larger than the direct impact of the disease itself and larger than the cost of measures to deal with the source of the disease, such as bird culls or restrictions on agricultural imports and exports.
Examples could include travel bans, school closures and disruption to emergency services, all of which could have major effects on economic activity. Indeed, there is a serious risk that the measures taken to contain the pandemic could cause economic loss out of all proportion to the effectiveness of the measures in preserving health.
Reality is one thing but perception is another. Fears of infection, whether justified or not, may have a big impact on sectors such as retail spending and tourism as people opt to stay at home. That proved to be the main cost of the 2002-2003 Sars outbreak in Asia. Our inset chart shows just how dramatic the effect of Sars was in China - although it also shows how quickly the economy rebounded once the worst fears lifted.
This time so far there have been none of the usual warning signs of a pandemic (such as clusters of patients in time and space, or transmission to health workers) even in the south Asian countries where bird flu has been common for many years. The mutation of the current strains of bird flu into something much more serious is a theoretical risk rather than an actual event.
But a crisis of this kind is almost certain to happen eventually, and with substantial economic cost. For the moment, though, unless there is some major new development, it makes more sense to focus on downside risks to the economy arising from more conventional causes.
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