Tuesday, April 28, 2009

The global economy, already hammered by plunging production, collapsing trade and its worst financial crisis since the Great Depression, now faces a swine flu outbreak that threatens to become a pandemic.

Airline stocks slumped Monday on reports that deaths related to swine flu increased to 149 in Mexico and that the number of human cases in the United States jumped to 40, none of them fatal. The U.S. Centers for Disease Control and Prevention recommended that Americans avoid nonessential travel to Mexico.

European Union Health Commissioner Androulla Vassiliou said Europeans “should avoid traveling to Mexico and the USA unless it is very urgent for them.”

But Margaret Chan, director-general of the World Health Organization, said travel restrictions were unnecessary. “We know from past experience that transmission of influenza or the spread of new influenza disease would not be stopped by closing borders and would not be stopped by restricting movement of people or goods,” Ms. Chan told international health leaders in a conference call.

“There’s no effect on business in the U.S.,” said Ann Beauchesne, vice president for national security and emergency preparation at the U.S. Chamber of Commerce. “It’s business as usual. There’s nothing to be alarmed about.”

“This has the potential for becoming a much more serious event for the economy. It’s certainly scary,” said Bernard Baumohl, chief global economist for the Economic Outlook Group. “This is something the economy did not need to have happen at this time.”

The immediate impact, Mr. Baumohl said, is the financial toll on airlines and leisure companies such as cruise lines and hospitality firms, including hotels.

Shares of Delta Air Lines, for example, shed 14 percent of their value Monday, while Continental Air Lines dropped 16 percent. Starwood Hotels was off 11 percent, and shares of cruise-line operator Carnival fell 14 percent.

“My reaction is hope against hope,” said Kevin Mitchell, chairman of the Business Travel Coalition, an advocacy group that represents the interests of corporate travelers. “I’m afraid. Having dealt with SARS, I am aware of the damage it can afflict on the airline industry. It is so fragile that [a swine flu crisis] could put a couple of carriers out of business,” said Mr. Mitchell, who declined to name any airlines.

“The impact on air travel demand will depend on how, where and to what extent the swine flu problem becomes centered in certain population areas, including New York City,” Mr. Mitchell said. He added that airline traffic on certain routes could drop 30 percent “if the swine flu story continues to evolve and we have the full deal.”

In 2003, an outbreak of severe acute respiratory syndrome, or SARS, cost the Asia-Pacific region an estimated $40 billion. SARS infected 8,000 people in 25 countries and killed nearly 800, while disrupting trade and travel across the region.

Last year, the World Bank estimated that a flu pandemic could shave 4.8 percent off world gross domestic product. The World Bank projected that a “severe” outbreak could cost $3 trillion by afflicting the tourism, transportation and retail industries and by slashing productivity and raising workplace absenteeism.

Last week, the International Monetary Fund estimated that world GDP would fall by 1.3 percent this year, the first annual contraction since World War II.

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