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Economy worries grow after flu outbreak

Chris Zappone
April 28, 2009 – 9:20AM

A swine flu outbreak in North America could spell more trouble for the stricken global economy if it continues to spread, analysts said.

The deadly flu, which originates in pigs but can be transmitted from person to person, has killed 20 people in Mexico, according to reports. It has raised the prospect of creating another test for businesses and consumers already grappling with the financial crisis.

National Australia Bank international economist Mark Rodrigues said the swine flu ”could have a negative impact on the global economic scene,” although he cautioned, ”we’re not at that stage yet.”

In addition to the cases in Mexico, where as many as 80 deaths may have resulted, cases have been confirmed in the US, New Zealand and Canada.

”If it does become bigger and impacts not just on regional but global confidence,” Mr Rodrigues said, the flu ”can spur another bout of risk aversion…and can have broader implications through a range of assets classes.”

The International Monetary Fund downgraded its estimate of global growth last week, forecasting a 1.3% drop in 2009, from 0.5% growth it had expected in January.

Mr Rodrigues said pandemics, such as swine flu or SARS (severe acute respiratory syndrome) create ”multiple effects” that flow through the economy.

In addition to slowing demand for travel and tourism, outbreaks can deter economic activity in the countries most affected, as people are deterred from spending time in crowded commercial areas.

”If it’s serious enough it can impair the normal functioning of the economic system.”

Qantas ready

The SARS scare in 2002 and 2003 forced airlines, particularly those servicing the Asia Pacific region, to cut flights as customers avoided unnecessary travel for fear of contracting the illness.

Qantas laid off more than 1000 staff in 2003 in response to the slowdown triggered by the outbreak of SARS.

A spokesman for Qantas the airline had encountered no cases of the illness and said there are ”no specific changes to travel arrangements.”

”We have standard produces in place and regularly review them,” he said.

Qantas is working with Australian and international authorities to monitor the situation, the spokesman said.

Like SARS

Swine flu “could have a pretty serious impact if it was to stick around for a long time and spread,” said JP Morgan economist Helen Kevans.

“Should cases of swine flu crop up in Asia like SARS did in 2002-2003,” Ms Kevans said, it could begin to weigh on those currencies.

There have been no confirmed cases in Asia so far.

From an economic perspective, ”it could well be a storm in a tea cup,” she said. ”We’re waiting for further clues.”

X-Factor

Swine flu is the newest ”x-factor in the world of risk” said RBC Capital Markets Sue Trinh.

Panicky investors are hitting the sell-button on currencies wherever they see the new uncertainty.

The New Zealand dollar bought 56.68 US cents, down from 57.21 US cents on Friday, after the nation said ten students were ”highly likely” to have caught the infection after visiting Mexico.

Traders are waiting ”to see if it spreads” and ”becomes more of a pandemic,” Ms Trinh said.

”Right now it looks like it’s well contained,” she said.

czappone@fairfax.com.au

http://business.theage.com.au/business/economy-worries-grow-after-flu-outbreak-20090427-ajq9.html

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