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The Honolulu Advertiser
Posted on: Tuesday, April 28, 2009

Flu adds to economic uncertainty

By Anthony Faiola
Washington Post

WASHINGTON — The swine flu outbreak is compounding the ailments of the global economy just as it is starting to stabilize, darkening the outlook for everything from tourism to world trade, particularly in the United States and Mexico.

In recent weeks, economic data suggested a bottoming-out of the global financial crisis. But economists yesterday were forced to digest worst-case scenarios in which a recession that is already the deepest since World War II could become two or three times as painful.

That would be the consequence of a full-blown flu pandemic. But even if the outbreak were to remain relatively contained, economists warned of a new round of woes.

Underscoring those concerns, airline stocks plunged yesterday amid fears of a replay of what happened earlier this decade in Asia, when outbreaks of bird flu and severe acute respiratory syndrome, known as SARS, emptied hotels and led to flight cancellations. The value of the Mexican peso took its steepest drop since November. And investors drove down the price of oil by 2.7 percent on fears that swine flu would slow global economic recovery.

But the real focus of concern centered on a new dose of the last thing the world economy needs right now — more uncertainty.

"The impact is to threaten the stabilization of the global downturn we've been seeing over the last few weeks," said Brian Dolan, chief currency strategist for www.Forex.com. "The timing could not be worse."

The damage could hit the ailing tourism and airline industries hardest. The European Union and a number of nations began warning their citizens yesterday to avoid unnecessary travel to Mexico and the U.S.

During the SARS outbreak in 2003 — the last major epidemic of a respiratory disease with human-to-human transmission — airline traffic to Asian destinations such as Hong Kong fell by as much as 60 percent. Overall, Asia-Pacific airlines lost 50 percent of traffic in the first five months of 2003, causing them $6 billion in losses. North American carriers saw passenger traffic fall by 3.7 percent that year.

This time, however, the global airline industry is already in deep crisis, raising the specter that deep losses could lead to forced consolidations or even requests for government bailouts. Airlines in the U.S., Asia and Europe saw their shares dive yesterday, though cancellations have so far been limited.

The outbreak is also affecting trade. Russia, China and the Philippines, citing swine flu, suspended pork imports from Mexico and some U.S. states where the virus has been detected, despite the fact that health officials say there is no link between pork consumption and the virus.