The Global Economic Effects of the Swine Flu

Introduction
The recent outbreak of swine flu (H1N1 virus) continues to dominate news headlines
around the world as reported cases of the flu now number in the thousands. Perhaps a
less well known story, however, is the growing concern over the possible economic
impact that this pandemic may have on the world economy which is already in the midst
of a global recession.

Economic Impact on Mexico

Mexico, the epicenter of the flu outbreak, has already begun to experience negative
economic effects of the swine flu crisis. Hit especially hard has been the hospitality and
tourism sector of the Mexican economy. Due to the contagious nature of the swine flu,
many tourists have cancelled or cut-short their trips to Mexico’s popular beach resorts.
As a result, Mexico’s $13 billion tourism industry is expected to decline sharply in 2009.

In addition to the negative impact on Mexico’s tourism, the swine flu crisis is expected to
adversely affect Mexico’s domestic demand and consumption. As Mexico City,
Mexico’s largest city where nearly 25% of its residents reside, is where most swine flu
cases have been discovered - the Mexican government has responded by essentially
locking down the city for the past few weeks in an effort to help curb the spread of the
disease. As a result, local businesses are expected to take a hit as residents are staying
indoors rather than purchasing goods and services.

Regional Impact
The economic aftermath of the SARS epidemic can provide a useful backdrop when
comparing the potential regional economic impact of the swine flu. The SARS epidemic
of 2003 resulted in clear-cut GDP decreases amongst the several Asian countries affected
by the disease. China, where SARS was first discovered, saw a 2.4% quarterly GDP
growth decline. Hong Kong’s economy also suffered as tourist arrivals dropped 70%
while restaurant sales dropped 20%. Hong Kong’s real GDP also dropped 9% when
compared to the previous quarter.

Like SARS, the swine flu epicenter can be described as regional in nature with a majority
of new cases being reported in Mexico and the United States. While the swine flu is
more likely to impact Mexico’s economy at this point, it remains to be seen whether the
United States will be adversely affected as well. Unlike with Mexico, no countries at this
point are banning trade or travel to the United States. However, as more cases are being
discovered in large US cities such as New York City – there is still the potential for
widespread outbreak in the United States which in turn would likely result in many of the
same economic ramifications that Mexico is currently facing.

Global Impact
While the WHO has categorized the swine flu as a global pandemic, most analysts agree
that the number of fatalities associated with the disease will have a direct correlation with
how much the global economy will be affected. Thus far, the swine flu is not expected to
have a significant impact on the global economy as fatalities have been limited in number
and most countries with infected persons have taken proper precautions to ensure that
human to human transmission of the disease remains minimal. However, if swine flu
does begin to kill people in large numbers, like the 1918 flue pandemic which killed 50
million people, then the effects on the global economy will be significant. In this
“doomsday scenario” the domestic demand of countries with large numbers of infected
people will grind to a halt. Global tourism will also become non-existent as people will
stop traveling to avoid infection.

Conclusion
If the current swine flu epidemic ends up infecting millions of people, then global GDP
could be adversely affected at a time when the global economy is already in its worst
recession in decades. If, however, the swine flu ends up being about as virulent as the
SARS outbreak of 2003, then Mexico will likely suffer a short-term economic setback.
Currently, health experts are predicting the latter scenario which should give Mexico
hope that their economy can be back on track next quarter.