The horrible economics of swine flu

In normal times, a global pandemic would tip a healthy world economy into recession. But we're already there.

Published April 27, 2009 4:39PM (EDT)

There is never a good time for a global pandemic that kills millions, but from an economic perspective, you couldn't pick a worse moment than right now for a scary outbreak of swine flu.

Consider, for example, how Bloomberg News opened its summary of a World Bank report in October projecting the economic effects of a pandemic (found via MinnPost):

A flu pandemic could kill 71 million people worldwide and push the global economy into a "major global recession" costing more than $3 trillion, according to raised estimates by the World Bank of a worst-case scenario.

A slump in tourism, transportation and retail sales, as well as workplace absenteeism and lower productivity caused by a "severe" outbreak, may cut global gross domestic product by 4.8 percent, the Washington-based bank said in an internal report updated last month and obtained by Bloomberg News today. Economic modeling by the bank in June 2006 estimated GDP would drop by 3.1 percent, or about $2 trillion.

That was in October. Since that point, without any help from the flu, the global economy spiraled into recession. The latest report from the International Monetary Fund, which calls the current global economic downturn the worst "by far" since the Great Depression, forecasts a global decline in GDP for this year of 1.3 percent. That's pretty bad all by itself, but shoveling another 4.8 percent decline on top of that would be a disaster of pretty much unimaginable proportions.

Mexico City, reports the Washington Post (found via Hilzoy) is a ghost town:

The virus, for which there is no vaccine for humans, has nearly brought Mexico City to a halt. Normally congested downtown streets in this city of 20 million were almost empty Saturday, and of the few people who ventured outside, many said they did so only out of necessity. Soldiers posted at subway stations handed out face masks to passersby from the back of armored vehicles. Some pedestrians covered their mouths and noses with scarves and rags.

Ryan Avent, blogging at the now-apparently-defunct Portfolio, titles his own post contemplating the economic impact of a pandemic "Sinking Animal Spirits," and that's exactly the point. Millions of people around the world are already feeling cautious about everything from buying a new car to visiting their family for a quick vacation. Their reticence, while utterly logical, also hamstrings the economy's chances to start growing again. According to the Bloomberg summary of the World Bank report, the efforts by people attempting to avoid getting sick are far more economically damaging than the actual healthcare costs associated with a pandemic.

Changed behavior by individuals in the face of a pandemic, such as reduced air travel in order to avoid infection in the enclosed space of a plane, avoiding travel to infected destinations and spurning restaurants and mass transport, could account for 60 percent of costs during a pandemic, the bank said.

"People's efforts to avoid infection are five times more important than mortality and more than twice as important as illness" in terms of economic impact, the authors said. In the worst-case, they assumed that air travel would slump by 20 percent for the whole year, and that tourism, restaurant meals, and use of mass transportation would decline by the same amount.

The European health commissioner, reports Doug Merrill at the A Fistful of Euros blog, is already recommending "avoiding non-essential travel to Mexico." Global air travel has already been battered by consumers hunkering down to get through the recession; if this flu outbreak gets worse, the domino effect on a global economy that was already breathing through a respirator will be fearsome.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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Related Topics ------------------------------------------

Globalization Great Recession How The World Works Swine Flu U.s. Economy