Economy at risk of meltdown if killer flu strikes

By Matt Wade
October 25, 2005

It would not take long for a deadly bird flu outbreak to take a toll on the Australian economy.

Confirmation that the virus could pass from human to human could convulse the world's financial system, disrupt trade and stifle Australia's economic expansion.

Tourism and transport would be immediate casualties because overseas travellers would stay at home.

The scale of Australia's tourism export trade - worth almost $22billion a year or 13 per cent of exports - means economic growth and employment would suffer, particularly in regional areas. Consumer and business confidence would also be affected, with consequences for spending and investment.

A deadly flu outbreak would alter consumer behaviour and many activities, and purchases would be replaced with alternatives. For example, if a flu outbreak slashed international travel, other parts of the transport and tourism industry would benefit from growth in domestic tourism as people substituted a holiday overseas for one within Australia.

The economic impact on Australia would become far worse if domestic cases were registered.

The SARS crisis in mid-2003 was a bellwether of the economic harm that could result from an outbreak of bird flu.

The AMP's chief economist, Shane Oliver, said growth in two advanced economies hit by SARS - Hong Kong and Singapore - collapsed by about 10 per cent, despite a small number of confirmed cases.

Modelling by an economist at the Australian National University, Warwick McKibbin, showed SARS cost the global economy $40billion. Even a mild outbreak of bird flu could cost the world "hundreds of billions", he said.

The Dutch bank ING warned that "large swathes of economic activity could simply cease" and that fear of infection would result in the greatest economic damage.

An economist with HSBC, John Edwards, said a flu epidemic would strike at the connections on which the whole global economy depended.

There would be mayhem on global financial markets as investors reacted to the likely changes to consumer behaviour, he said. "News of a flu epidemic would trigger a rapid global sell-off of bonds and equities and a flight into cash."

The ANZ's chief economist, Saul Eslake, said high household debt and the big current account deficit meant the economy was less well prepared to cope with external shocks than at the time of the Asian crisis in 1997 or the US recession and terrorist attacks in 2001.

He believed the Government would have to bolster the economy with public spending, potentially sending the Commonwealth into deficit.

Dr Oliver said the economic damage would also depend on how long an outbreak lasted.

"If it were to continue beyond six months then you would see problems with people servicing their loans … and then there is trouble for the banks and that sort of thing. If the outbreak lasted for a year then you would run into lasting troubles."
