PARIS – The threat of a swine flu pandemic kept global businesses and investors on edge Tuesday, disrupting travel plans and sending stock markets down on fears the outbreak could worsen and cause more economic misery.
Days after news of the deadly virus outbreak in Mexico, stocks of companies in the travel and tourism industry were being hammered on fears that worried travellers would stay home.
Across Asia, tour groups abandoned more holiday jaunts to the country amid a series of government warnings. Airports from Indonesia to Australia tightened their screening of travelers.
In Moscow, the U.S. Embassy issued a statement saying there was “no basis” for Russia’s decision to bar pork imports from three U.S. states, saying the disease was not spread through meat products, and hoping that normal trade would soon resume.
Much of the fallout hit financial markets jittery about the future, as opposed to the real economy. Shares in Europe’s largest airline Air France-KLM continued the sharp drop begun Monday, falling an additional 2.85 percent to euro8.16 on Tuesday. Shares in European hotel giant Accor SA, which operates 9 Sofitel and nearly 1,000 Motel 6 hotels in the United States, slid 4.35 percent to euro30.10.
Shares in Euro Disney, which earlier Tuesday said its net loss nearly doubled to euro85.4 million in the fiscal first half, were meanwhile down 9.8 percent at euro3.60.
The disease, while still largely corralled in North America, has spread rapidly in recent days with the World Health Organization raising its global alert level and moving closer to declaring a flu pandemic as infections cropped up in Europe. Asia’s first cases were confirmed in New Zealand; another case emerged in Israel. The virus is suspected in about 150 deaths, all in Mexico.
With the world economy already seen shrinking 1.3 percent this year by the International Monetary Fund, swine flu could add more stress by further eroding trade, consumer spending and investment — snuffing out what many say are the glimmers of a recovery.
“This certainly could exacerbate the recession,” said Sherman Chan, an economist with Moody’s in Australia. “The next couple weeks will be crucial. If this persist it could become a more serious concern and really cripple the economy.”
For the U.S. economy, any turnaround could be delayed well into 2010 as gross domestic product contracts more than expected. In a worst-case scenario, the U.S. economy would shrink by an extra 0.3 percent this year, on top of a predicted 3.5 percent decline, says Brian Bethune, economist at IHS Global Insight. That amounts to a roughly $50 billion loss of economic activity, he said. The IMF already has projected the U.S. economy will shrink 2.8 percent this year.
White House spokesman Robert Gibbs said it’s a “little too early to determine the economic impact” but the Treasury Department and agencies are “monitoring the situation and looking into it.”
Still, most experts don’t think a swine-flu outbreak by itself would eliminate many U.S. jobs or severely worsen the economy.
Simon Johnson, former IMF chief economist and a professor at the Massachusetts Institute of Technology’s Sloan School of Management, envisions only a “small hit” to economic activity in the United States — just a few tenths of 1 percentage point.
Still, markets were down sharply overall, with Japan’s benchmark off 2.7 percent and South Korea’s shedding 3 percent. London’s FTSE and Germany’s DAX both slumped 2 percent or more.
The unease extended to companies and tour groups from China to South Korea, where Samsung Electronics Co. told its employees not to travel to Mexico on business.
In Hong Kong, among the cities hardest hit by the SARS epidemic six years ago, one travel agency scrapped trips to Los Angeles because of the city’s proximity to Mexico. A second said it was canceling an 18-day excursion to Mexico, Cuba and Venezuela as a result of swine fu.
“This outbreak looks very serious,” said Roger Hong, deputy general manager of Hong Kong-based Goldjoy Travel. “The outbreak has just begun. We don’t know how far it has spread.”
The flu could also hurt the $5 billion export market for U.S. pork. China, Russia and Ukraine banned imports of pork and pork products from Mexico and three U.S. states that have reported cases of swine flu. Other governments were increasing screening of pork imports.
Even though it’s safe to eat pork (swine flu viruses don’t spread through food), analysts still expect an impact on the industry.
“Though there is no evidence that swine flu can be obtained by eating pork, the fear generated by a disease named after hogs cannot be good for pork consumption,” said JPMorgan analyst Ken Goldman.
Despite the growing alarm, the world is now better equipped to deal with cross-border health crises after being tested by SARS and bird flu.
Vaccines can be rolled out fairly quickly. Many big companies now have contingency plans to keep essential operations going if employees can’t make it to work. And compared with previous crises, this time around has witnessed relatively quick responses and transparency from governments — two factors critical to keeping up public confidence, analysts say.
“On the one hand, it’s a terrible and traumatic thing — a flu pandemic,” Johnson said. “On the other hand, it almost certainly will not have a significant effect.”