- WASHINGTON (Reuters) - The severity of a global economic slowdown caused
by a bird flu pandemic, estimated to slash 1 to 12 percent off world output,
largely depends on how people and governments react, economists said on
- Initial confirmation of a bird flu strain
that easily transmits between people would have an immediate shock effect
on the world economy both in supply -- absenteeism and reduced productivity
-- and demand -- a drop in activity -- but the depth and duration of the
shock depends on people's reaction.
- "Behavior, behavior, behavior is
everything," International Monetary Fund capital markets expert Charles
- "We see a sharp down, followed
by a recovery. Governments need to ensure the collateral damage from the
sharp down be minimized so we bounce back," he told a think-tank discussion.
- The H5N1 avian influenza virus has picked
up speed as it has spread out of Asia and into flocks in Europe and Africa,
and experts agree a human pandemic is a question of time. The virus does
not yet easily infect humans, having killed 130 people in nine countries
since 2003, but scientists fear it could mutate into a pandemic that could
- "The (economic) effects tend to
be lower than you'd expect because people are good at adjusting,"
said Donald Marron, acting director of the U.S. Congressional Budget Office,
citing the U.S. economy's resiliency after the Sept. 11, 2001, attacks
and last year's Hurricane Katrina. "A lot depends on the public
reaction, which is difficult to predict," Marron added.
- Public reaction is already being felt
by poultry producers, World Bank economist Andrew Burns said.
- The Food and Agriculture Organization
expects an 8 percent fall in world demand in 2006, despite no risk of contracting
the virus from cooked meat, and he said demand in France -- with two isolated
cases of infected flocks -- fell 40 percent.
- Air travel could drop as much as 20
percent once a human pandemic occurs with passenger numbers dwindling by
40 to 50 percent on flights to the hardest-hit countries, Burns said.
- Pharmaceutical companies could see their
stock prices jump while some commodity prices may fall, the IMF's Blitzer
- Economies should weather the pandemic
better than the last severe pandemic of 1918 thanks to better social safety
nets and technology that allows people to work from home, he added. "The
IT backbone is really going to get stretched and it seems little attention
has been paid to this," Blitzer said. "Countries with weak fiscal
positions, dependent on commodity exports are most exposed to a reversal
in capital flows."
- Insurance companies and investment funds
could come under pressure during the initial economic shock but market
price effects should be temporary. Another concern due to absenteeism is
disrupted bank payments, accounting and market settlements.
- Central banks should expect a jump in
demand for cash and they will have to meet that demand before worrying
about mopping up extra liquidity or inflation, Blitzer said.
- Citigroup's global head of emerging
markets economic and market analysis, Don Hanna, added that investors are
likely to put their money in safe-haven U.S. dollars and securities. "Long-term
interest rates would adjust less in the U.S. probably because of a better
health response (than most of the world) and more money would come into
the U.S. economy so there would be no unwinding of global imbalances,"
- Massive U.S. fiscal and trade deficits
and corresponding hoarding of foreign reserves by Asian central banks are
growing concerns for policy-makers who fear a disruptive correction.