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Is SARS a guide for the economic impact?

(Agencies)
Updated: 2009-04-28 17:31

SINGAPORE - As fears grow about whether a new dangerous strain of swine flu will develop into a global pandemic and affect economies, Asia can look to the 2003 SARS epidemic for pointers on what might happen. In 2003, Asia was feeling the effects of the October 2002 Bali bombings, a tentative world recovery was underway from the bursting of the technology bubble and there was conflict in Iraq.

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Likewise today, other factors, such as job and income losses from the credit crisis, could make it difficult to isolate the effects of any swine flu outbreak.

But SARS provides the last main point of reference in how the world dealt with a pandemic that was spread by human-to-human contact and how it affected economies and markets.

Here are some questions and answers about the severe acute respiratory syndrome, or SARS, crisis:

WHAT WAS THE IMPACT OF SARS ON ASIA?

The World Health Organisation declared SARS a pandemic in March 2003. By June of that year, it had lifted an advisory warning against travelling to SARS affected countries.

According to the Asian Development Bank, the cost of SARS in terms of lost GDP in nominal terms for East and Southeast Asia was about $18 billion or 0.6 percentage points of 2003 GDP.

The main channels through which SARS affected economies was through tourist arrivals. ADB data shows a 20-70 percent drop on tourist arrivals in April 2003 in the most affected economies, while others in Asia also saw declines of 15-35 percent, leading to estimated tourism revenue losses of nearly $15 billion or 0.5 percent of GDP.

SARS-affected economies experienced drops in retail sales growth in the order of 5-10 percent in early 2003. Hong Kong's economy shrank 2.6 percent and Singapore's by 2 percent in the first half of 2003. Overall growth was ironically helped by a simultaneous decline in imports and investment.

HOW DID MARKETS REACT TO SARS?

Market reaction was relatively muted, possibly because the panic over SARS lasted for just about one quarter and governments reacted quickly.

The Singapore dollar fell nearly 4 percent against the US dollar between the end of January 2003 and the end of April 2003, but it then rallied.

MCSI's emerging Asia-ex-Japan index fell around 14 percent between January and March 2003. From the end of March it rallied by 56 percent during the rest of the year Hong Kong's benchmark index shed 18 percent of its value between December 2002 and April 2003, bottoming at a 4-year low.

WHAT ECONOMIC MEASURES WERE IMPLEMENTED IN RESPONSE TO SARS?

China had price controls for SARS-related drugs, tax waivers for affected industries such as hotels, interest subsidies for tourism sectors.

Hong Kong's government announced a package of measures worth around 1 percent of GDP, which included tax reductions and loan guarantees. Singapore likewise had a SARS relief package including measures for airlines. It also eased monetary policy in July 2003 by a one-off devaluation of the currency. Malaysia's package was close to 2 percent of GDP and included cheaper loans, support for job training and tourism sectors.

IS THE ECONOMIC SITUATION DIFFERENT NOW?

The starting point for most economies is much lower, since the credit crisis has already plunged a lot of the developed world and economies such as Singapore, Japan and Chinese Hong Kong into recession.

Tourism received a big boost between 2004 and 2007 and is now a much bigger contributor to growth, with revenues comprising between 6 and 9 percent of GDP in Chinese Hong Kong, Malaysia, Thailand and Singapore.