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Flu Economics

Author: Lee Hudson Teslik
May 1, 2009

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The recent swine flu outbreak demonstrated how quickly the effects of an epidemic can spread beyond public health concerns. Mexico City, the outbreak's early epicenter, transformed into what Newsweek called a "city of fear." Media alarm mushroomed into what one expert called an "infodemic" (FP). And the economic repercussions were immediate. The Mexican peso cratered (Dow Jones), travel advisories derailed tourism (Bloomberg) (with knock-on effects for airlines), and some trading partners moved to block certain Mexican exports. Officials in Mexico City have already lowered their estimates (Reuters) for economic growth, and some analysts speculate Mexico will have to tap its $47 billion credit line with the International Monetary Fund.

From an economic perspective, Mexico's troubles represent a mere sliver of the economic problems an epidemic could create. Experts say the cost of the H1N1 virus stretched beyond the expense of containing the disease and treating those infected. Over ten countries outside Mexico, including the United States, have confirmed cases of the virus. That number is expected to rise. CFR's Laurie Garrett noted in a recent conference call that the virus's spread and the WHO's heightened alert level require more stringent public health measures worldwide, all of which come at an expense. These costs are a particularly bitter pill for developing countries, which have more significant financial restraints and which, in many cases, have already seen their economies shaken down during the present economic crisis.

Nor would the economic toll of an epidemic necessarily be limited to the countries that report cases. Academics Warwick J. McKibbin and Alexandra A. Sidorenko note in Foreign Policy that epidemics lead more generally to productivity losses, declining consumption, pressures on businesses' operating costs, and the flight of foreign investment, particularly from developing countries. Many experts have compared the current outbreak to the SARS outbreak of 2003, which cost the global economy some $40 billion. CFR's Roger Kubarych examines the precedent of SARS in a new research note (PDF) and concludes that swine flu is likely to have a more significant economic impact.

Estimates about the total economic cost of the swine flu outbreak vary significantly. The final toll will depend largely on how many people the virus ultimately affects--a factor which, obviously, remains unknown. Still, experts have developed cost estimates for epidemics of various strengths, so it is possible to outline different economic fallout scenarios. The World Bank, for instance, predicted in 2008 that a severe pandemic--one on the scale of the 1918 Spanish flu pandemic, for instance--could cost the global economy more than $3 trillion (Bloomberg) due to declines in tourism, retail sales, and workplace productivity. McKibbin and Sidorenko, in a 2006 study for Australia's Lowy Institute, say even a "mild scenario" flu outbreak would likely cost roughly $330 billion during its first year. They argue in their Foreign Policy piece that preventing a major epidemic from causing a financial catastrophe in the future will require significant investments in poverty reduction and healthcare, specifically in developing countries. Boosting access to health care and reducing poverty, while part of an overall international strategy for developing nations, is complex and often undermined by other policy priorities in donor nations and events such as the current economic downturn.

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