Global comparative study and Socio-economic implications of SARS

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Humankind has been besieged throughout its evolution by microorganisms that pose a continual challenge to the survival of the species. The bubonic plague that swept across Europe during the Middle Ages, the smallpox that was carried to the Americas by the Spanish, and the influenza outbreak of 1918 all bear testimony to the historic relevance of infectious pathogens and their ability to cause widespread death and suffering and now SARS is spreading like wildfire in some parts of China. The severe acute respiratory syndrome [SARS] is spreading like an incurable disease in many countries and especially in China. It is estimated that China may loss US$7 billion from that fatal disease. The worst hit is the service industries in China, Fareast countries and Asia as a whole. Hong Kong has tried to stimulate its SARS flattened economy with a $3 billion aid package. The fear of SARS and rapid growth of it is damaging the basic socio-economic core of many societies in Asia and around the globe.

In case of Hong Kong and Singapore the economy impact has been the most severe, given the heavy reliance of the two economies on the service sectors. Retail sales in Hong Kong have plunged 50% with locals shunning shopping malls, restaurants and other crowed places and tourists shunning the place altogether. In the restaurant trade, about 50 eateries have temporarily closed. And if the SARS out break last 3 months, it is estimated that one third of the city’s 10,000 restaurants might be forced to close. It is now estimated that if widespread of SARS is not checked it may kill every body in Singapore, a nation three and half times the size of the district Columbia, by killing the economy or more specifically the service economy. SARS has done what September 11failed to do. After Sept11 travel agents complained of a 40% drop in sale. Now the drop is between 50%-90%. People are not traveling due to fear, and the hassle of tight health screenings at airports. The earnings of Taxi drivers have down to 40%-70%.

Tourism-related service sectors, including airlines, hotels, entertainment, retail and restaurant business, are particularly affected. Exports will also be affected as trade fairs and business travels are canceled and demand for goods from affected areas fall, and the persistence of the outbreak could dampen investor confidence, resulting in weaker investment and inflow of foreign capital. The supply side will also have shocks; the work force will be reduced due to the disease, affecting both the service sector and manufacturing. Delays in international shipments of parts and final goods may also hamper cross-border trade, aggravating the supply-side shocks.

SARS AND GLOBAL AIRLINES INDUSTRY

International airlines flying in and out of the Pacific Rim are the first to feel the effects of the deadly disease that threatens to get out of control. Lufthansa lost 356 million euros ($409 million) in the three months ended March 31 compared with a loss of 186 million euros a year ago. German airline it would lose money on an operating basis for the year as a whole. Lufthansa said the impact of SARS has been greatest on the company’s routes to Asia, where the disease has infected thousands. For 2002, the company reported an operating profit of 718 million euros. Operating profit excludes financial items such as interest and taxes and indicates the health of a company’s core business. The company’s operating loss for the first quarter was 415 million euros ($477 million) mainly due to widespread of SARS in most of the Asian countries.

Air Canada reported a deeper first-quarter operating loss said the deep slump in air travel worsened in April as the SARS outbreak choked off flight bookings in Toronto. Air Canada, the country’s largest airline and world No. 11, has been under court protection from creditors since April 1. The carrier said its preliminary un-audited operating loss in the quarter widened to C$354 million ($255 million) from C$160 million a year earlier. For the fourth quarter of 2002, Air Canada’s net loss amounted to C$764 million or C$6.35 a share. That hurt revenues by more than C$125 million for the month as traffic on Asian routes fell some 60% and Toronto boarding were off more than 25%, Air Canada said. "The preliminary un-audited operating loss for the month is expected to be C$152 million, or C$123 million worse than the corresponding period last year. SAS Group, the Scandinavian travel conglomerate, posted a wider first-quarter loss as weak economic conditions and fears of SARS and the war in Iraq caused travel demand to decline. The group lost 1.6 billion kronor ($201.6 million), or 9.7 kronor ($1.22) per share, for the three months ending March 31. A year earlier, the company had a loss of 1.3 billion kronor, or 8.1 kronor a share.

With the drastic fall in travel, the airlines of Southeast Asia are facing bankruptcy. Singapore’s Changi airport a major airline hub for Southeast Asia is feeling the heat under great economic pressure due to commonness of SARS. It predicted a slump of 280,000 passengers for March 2003 down by 11% from March of last year. Passenger traffic fell 38% in April 2003 compared to the first week of April last year.. The number of scheduled flights at Changi fell nearly 20% from 3428 at the beginning of this March to 2754 at the beginning of this April. This far exceeds the 7% fall in flights at Changi after Sept 11. South Korea’s Incheon International Airport reported a 36% dive in passengers on overseas flights in the first half of April against the same period last year. Hong Kong number 2 airline Dragonair will cut 50% of its service. Cathay Pacific Hong Kong ‘s number 1 airline has so far slashed flights by 37% to save money in the light of falling passenger traffic. Gardua Iindonesia’s international airline estimated its load factor drop from 80% to 60% for routes to and from Singapore, Vietnam, Hong Kong and China. Merpati Indonesia’s domestic airline calculated a 5% drop in load factor and Vietnam’s 2 airline Pacific Airline plans to suspend its Hanoi to Danang service due to a 30% fall in bookings. Malaysia Airlines is estimated that it would defer its expansion plans due to the SARS outbreak, which has left it with heavy losses.

The SARS virus is hitting China’s airlines hard, forcing them to keep flights grounded and cancel orders for new planes. According to official statistics, passenger numbers fell 81.2% in the first 10 months of the year compared with the same time last year. It is estimated that most domestic airlines had already been dragged into the red. And three airlines, Air China, China Eastern Airlines and China Southern Airlines might not take delivery of 39 new planes this year. Thousands of flights have been cancelled and the airlines are ready to ground more if passengers continue to stay away. Air China’s plans to list on the stock market this year could also be delayed.

The effect of the SARS virus is being felt by other airlines in the region. Asia’s biggest carrier, Japan Airlines, reported a surprise operating profit. But it warned that it expected to go back into the red this year because of the impact of SARS. But this was before the SARS problem. Thai Airways could go into the red in the April to June period. Bank of Thailand governor stressed that SARS would cut tourist arrivals by half during April to June and by a third between July and September.

The virus has prompted carmaker Honda to consider delaying production of a new model in China because of the SARS outbreak. Honda spokesman Masaya Nagai said that if production of the new car was delayed, it would increase production of the Accord model in China to fill the gap.

Its impact not only covered social and economic sectors, but also posed great psychological problems among the public. This in turn brings a negative influence on certain economic fields, such as tourism, transportation, entertainment, retail and food services SARS has created a disproportionately large psychological impact on people in relation to its relatively low death rate. Among the reported SARS cases, the mortality rate has been seven percent and the recovery rate is 43 percent

ASIAN DEVELOPMENT REPORT ABOUT SARS

According to latest report of Asian Development tourism contributed to 10% of Singapore’s GDP of Malaysia’s 7%, 5% of Hong Kong’s and 4% of Vietnam’s SARS has ended that avenue of escape from economic reality. As of early April 2003 Malaysia Airline witnessed 600-flight cancellation daily. Thai Airways reported 300,000 cancellations so far. Penang Malaysia’s second largest city reported that its blood bank is drying up because donors are staying away. Malaysia’s poultry exports to Singapore are down by 20% and fruit and vegetables exports from Malaysia to Singapore have been interrupted. Rail travel between Malaysia and Singapore has fallen by 42%. Hotels in Malaysia are reporting a drop in business of between 30% to 40%. Vietnam workers are now being barred from seeking job in Malaysia as well as Singapore. Hotel occupancy rates in Indonesia had declined to around 40% due to a combination of a general downward economic trend and terrorism. Last year Indonesia earned US$3.4 billion from tourism hard currently desperately needed to keep the nation afloat.

The Asian Development Bank cut its economic growth forecasts for Asia again because of the impact of severe acute respiratory syndrome. Hong Kong, Singapore and Taiwan would be the hardest hit, with growth in 2003 declining by 1.8 percentage points, 1.1 points and 0.9 points respectively, if the impact of SARS extends until the end of June. That would lower annual growth. For East Asia, which the ADB defines as China, Hong Kong, South Korea and Taiwan, economic growth is expected to fall by an average 0.4 percentage point to an annual rate of 5.3 percent. The figures exclude Japan. The ADB estimated that growth in China would fall by 0.2 percentage point to an annual rate of 7.3 percent, while South Korea would fall by 0.2 point to 3.8 percent. For Southeast Asia, which comprises Indonesia, Malaysia, the Philippines, Singapore and Thailand, the ADB estimates growth will decline by an average 0.5 point to an annual rate of 3.4 percent.

In a report April 28, the ADB estimated that SARS would depress growth in Asia this year by 0.1 to 0.2 percentage points to 5.3 percent of GDP. The SARS virus could cost Asia $28bn (£17bn) in lost economic output, a major lender to the region has warned. According to Global Export Forecast [EDC] has indicated that the economic cost of SARS will amount to US$30 billion in 2003.

The Asian Development Bank [ADB] calculated the likely effect of the disease under different epidemic scenarios, and forecast losses totaling up to $20bn in the four most vulnerable economies China, Hong Kong, South Korea and Taiwan. In the case of Hong Kong, the ADB predicted the SARS could knock four percentage points off economic growth this year taking it down more or less to zero. SARS economic impact could be felt disproportionately in Asia. Asian economies are heavily dependent on tourism, which accounts for at least 10% of gross domestic product in most of the affected countries. And regions such as Hong Kong and Singapore are almost completely dependent on the sort of service industries that demand regular and varied human contact something many in the region are eager to avoid. Many companies have temporarily closed down their operations around Asia, and visitors to some destinations have fallen by half or more.

ECONOMIC PLANNING AND DEVELOPMENT [CEPD] REPORT AND SARS

The Cabinet-level Council for Economic Planning and Development [CEPD] raised the possible loss of production value in Taiwan’s gross domestic product to more than NT$22 billion (US$632 million) in 2003 if the SARS fears last longer. The council recently estimated the impact from severe acute respiratory syndrome [SARS] could slash around NT$10 billion in production value and shave the economic growth by 0.1 of a percentage for 2003 in case the mysterious flu-like killer disease lasts for half a year.

The factor of SARS has dealt a heavy blow to the service and tourism sectors and if the contagious disease goes unchecked for one to two months, then its fallout will affect the economic growth between 0.03 and 0.1 of a percentage point. But as the outbreak of the disease is still developing, it is difficult to make predictions. The estimated GDP loss at NT$22 billion, accounting for 0.25 of a percentage point if the SARS fears are not contained within three to six months. A total of 16 countries have issued warnings to their people about the alleged risk of catching SARS when traveling in Taiwan. At the elegant Great Eagle Hotel in Hong Kong, occupancy of the 487 rooms has fallen into single digits.

SARS AND ITS DIVERSIFIED GLOBAL SOCIO-ECONOMIC IMPLICATIONS

– The hotel occupancy rate across Hong Kong is 15%, in contrast to a more usual 82%.

– The impact of SARS on these countries has been four or five times the impact of September 11 in the States World Travel & Tourism Council [WTTC].

– Livelihoods have been devastated. The tour guides in Hong Kong, has seen his income fall by 90%. Hotel staff, cooks and even taxi drivers have all been affected.

– The SARS killer disease is set to depress prices across Asia, it could have the opposite effect globally and so help allay growing fears of deflation in the United States and Europe. Motorola Inc’s closure of its main office in Beijing, PCs and related IT equipment. "The SARS shock will extend and deepen Hong Kong’s deflation trend.

– The U.S. economy has been struggling to overcome a series of obstacles from the onset of the Iraq war to late winter storms and the outbreak of a mysterious Asian virus, the Federal Reserve reported Wednesday.

– The spread of the deadly SARS virus could stifle economic growth in Asia and could also have repercussions for the Canadian economy. The impact on the Canadian economy would be something like 0.1 per cent in terms of GDP growth for this year based on a 10-per-cent drop in tourism and tourism-related spending over six months.

– The consumer market in Shahalam Market Lahore is out of stock because of temporarily suspension of trades by roads between Pakistan and China.

– In the country the prices of electrical appliances and small electric instruments have increased 15 to 25%, which are posing serious implications to general people and businessmen alike.

– The average earnings of truck drivers of Gilgit, and many Northern Areas have decreased 25% to 65% due to decrease in bilateral road trade between Pakistan and China.

Economics works in integration not in isolation. Interrelated, interconnected and integrated efforts and performances of all the sectors i.e. export, agriculture, tax collection, banking and many other important sectors are supposed to be responsible for sustainable economic growth in a country. The SARS epidemic indirectly threatens the banking system with more businesses being expected to go bankrupt. It is also threatening to worsen the already hopeless fiscal deficit of affected countries with revenues collapsing due to reduced economic activity. For example, in the case of the Philippines, posted a whopping US$557 million deficit in its balance of payments in March 2003. The South Korean government has cut its main interest rate for the first time in almost a year, because of fears that the SARS virus, as well as the threat of nuclear weapons in North Korea is hurting the economy.

ESTIMATION OF THE IMPACT OF SARS ON SELECTED ASIAN ECONOMIES

Economies

Estimated reduction in annual GDP growth if SARS lasts for 1 quarter in 2003 %

Estimated reduction in annual GDP growth if SARS
lasts for 2 quarters in 2003 %

Estimated reduction in GDP level if SARS for 1 quarter in 2003 (US$ billion)

Estimated reduction in GDP level if SARS lasts for 2 quarters in 2003 (US$ billion)

East Asia

0.4

1.0

8.8

20.0

The PRC

0.2

0.5

2.3

5.8

HK, China

1.8

4.0

3.0

6.6

Korea

0.2

0.5

1.3

3.0

Taipei, China

0.9

1.9

2.5

5.3

Southeast Asia

0.5

1.4

3.2

7.7

Indonesia

0.5

1.4

0.7

2.0

Malaysia

0.6

1.5

0.5

1.3

Philippines

0.3

0.8

0.2

0.6

Singapore

1.1

2.3

1.0

2.0

Thailand

0.7

1.6

0.8

1.8

Source: ERD of ADB using OEF model, staff estimates (2003)

SARS AND GLOBAL EPIDEMIC

SARS has now become global epidemic. The ratios of deaths from SARS are increasing day by day in Canada. Canada has been the country worst hit. "SARS will clearly have a sustained impact in every affected area of the world and has already had a ruinous effect on our summer 2003 Air Canada said passenger traffic at its mainline fell 22.3% in April from a year earlier. Capacity dropped by 16.7 per cent, while the load factor eroded to 69.6% from 74.6% a year earlier. Capacity will be cut 60% on Asian routes and 25% on transporter routes to the United States. Some 40 aircraft will be grounded, including wide- and narrow-body aircraft in the mainline fleet and some turbo-props at Jazz.

Sr. No

Name of the Country

No. Of Deaths

1

China

275 to 289

2

Hong Kong

238 to 251

3

Taiwan

35 to 40

4

Singapore

28

5

Philippines

2

6

Vietnam

5

7

Thailand

2

8

Malaysia

2

9

Canada

23 to 23

Source: (WHO 2003)
– Probable cases have been recorded in Brazil, Colombia and the United States, Italy, India, Finland and Pakistan.

SARS AND ECONOMY OF CHINA

In China the government has announced that the nation’s economy has grown by 9.9% in the first quarter of 2003. It is the highest growth rate in six years and paints a rosy picture of China’s finances. But it is feared that the SARS bug, the atypical form of pneumonia that has infected over 1,400 Chinese people, could spark an economic downturn. The World Health Organization says that the effects of SARS will cost $30bn globally. In China, analysts conservatively estimate it will knock half a percentage point off the country’s growth rate. In Taiwan, where a record number of new cases were reported over the weekend, the mass resignation of medical workers has put the country’s healthcare system under additional strain. SARS has killed around 643 people worldwide and infected more than 7,800 people mostly in Asia since it first emerged in southern China in November.

The outbreak of a new respiratory disease has inflicted the greatest blow to the Chinese economy since the Tiananmen Square killings in 1989, causing a plunge in retail sales, a slump in demand for some Chinese exports and a near-collapse in domestic and foreign tourism. The tourism, civil aviation, railway and road passenger transport, restaurant, hotel and service sectors suffered marked losses, exports of low-cost cotton yarn dropped, but the import of masks and protective gowns surged. The decline in consumption is one of the disease’s direct impacts on the economy as fewer people go to department stores, which are often cited as the crowded public places.

The municipal government in Beijing has ordered the closing of all movie theaters, Internet cafes, discos and other places of entertainment. The initial impact has fallen most heavily on businesses that provide services, which are most dependent on consumer spending and make up a third of the Chinese economy. But there are signs that the enormous manufacturing sector, which accounts for half of economic output, could begin to feel indirect effects soon, too. Hotel occupancy has fallen by 30 per cent since April compared to the same period last year. The occupancy of six five star hotels surveyed has decreased by 50 per cent. Hence it is not difficult to imagine the losses to airlines, restaurants and tourist sites

The negative impact of SARS on the Chinese and Asian economies is all too evident. Many institutions are of the opinion that SARS will do more damage to economic growth in Asia than the war in Iraq. Take a look at the retail business in Hong Kong, which fell by 50 per cent in March, while many restaurants have either closed or taken an extended holiday.

The infected areas (Guangzhou, Guangxi, Hunan, Sichuan, Shanxi, Beijing and Fujian) account for 50% of the Chinese economy. One key concern on the economic front is the impact of SARS on the Pearl River Delta [PDA]. In 2002, its exports were US$120bn, accounting for 37% of China’s total exports. As a lot of exports from the area are processed products with limited R&D inputs like textiles, clothing, toys and electronics, the substitutability between the PDA and other Asian nations is probably quite high. An extended period of the SARS crisis could conceivably shift the supply chain. Another important characteristic of Guangdong is that it is extremely open roughly the same as that of Canada. While the export/GDP ratio was only 26% for China as a whole in 2002, it was 84% for Guangdong.

According to some forecasts, the GDP growth could stop in China in the second quarter, which will negatively affect economies in the South Eastern Asia. Chinese problems also influence Russia’s economy. The tourist and shuttle traffic to and from China has dropped by some 30 percent. Aeroflot has retained only three regular flights to Siangan and five flights to Beijing. Pulkovo Airlines has canceled all flights from St. Petersburg to Beijing until the middle of June. However, Russian regions bordering on China suffer most of all as their residents earn their living by trading with neighboring Chinese provinces. The number of Russians going to China has dropped by half lately. Losses to the China regional budget have been about 1m rubles ($32,000) over the past month; tourist companies and transportation companies have lost about 8m rubles ($258,000) in revenues. The Confederation of Indian Industry [CII] has stressed that the Severe Acute Respiratory Syndrome [SARS] may bring in uncertainty in the global as well as Indian economy. SARS may prove to be a major hindrance to the growth of the economy.

In China, the disease is causing social tensions to rise dramatically in many regions. Some fearful villages are barring outsiders, setting up roadblocks at the village limits because of anxieties that visitors might carry the disease. In the village of Chagugang, southeast of Beijing, police confirmed that thousands of villagers had rioted and ransacked a school after hearing rumours that it would become an isolation centre for SARS patients. Beijing has become the most dangerous city in the world for new SARS cases, and more than 9,600 city residents have been placed in quarantine. Police have sealed off three hospitals to keep them in quarantine. Schools, bars, cinemas and theatres have been. China-ASEAN have agreed to set up a China-ASEAN special fund on SARS to which China committed 10 million yuan (1.2 million dollars). "Thailand is ready to pay 250,000 dollars, or 10 million bath.

There are many obvious and hidden risks associated with SARS, which are explained below as

Name of the Risk

Details

Unemployment Risk

SARS has pushed millions of small and medium-sized enterprises [SMEs] to their knees. These businesses provide vast employment opportunities. SARS may push the urban unemployment rate from the current 8.5% to 13% within 2-3 months. A more serious risk lies with migrant workers who are not part of the official statistic, number 80 million and are also employed by SMEs. If they lose their jobs and are forced to return to their hometowns, this could increase the risk of spreading SARS.

Fiscal risk

The government will increase expenditures to cover the extra health costs for treatment of SARS patients and to finance new investment projects to stimulate growth, which will also raise China’s already high investment ratio, which currently stands at 42%. China’s 2003 deficit will, as a result, increase from -2.8% of GDP to -3.3%. Finally, as growth slows, revenue will also be affected.

Financial risk

The most significant effect of SARS on the Chinese economy is probably through increased risk premium for all China-related investment. The SARS debacle has increased the profile of corporate governance and regulatory transparency issues for foreign investors pursuing business opportunities in China. The authorities are also worried about the health and stability of the banking sector. The expected rise of fiscal deficits and deterioration of external accounts both current and capital accounts) will likely exert downward pressure on the currency.

Central bankers played down the likely impact of the outbreak of SARS on Asian economies and said they could see the first buds of a slow global economic recovery following the end of the conflict in Iraq. Eddie George, governor of the Bank of England, said after a regular meeting of central bank chiefs at the Bank for International Settlements [BIS] here that the economic impact of the new disease was confined mainly to the tourism and travel industry. According to a ADB report that the country’s export orders could be slashed by 1.15 billion dollars this year because of the outbreak of SARS in Taiwan. The Asian Development Bank [ADB] warned that East Asia could lose nearly 28 billion dollars in income and output if the region fails to control SARS by September, with Hong Kong was likely to be the worst hit.

Volume of bilateral trade is increasing day by day between China and India. According to just-released Chinese customs statistics, bilateral trade between India and China during January-March this year witnessed an impressive growth of 77.8 percent, with total trade touching US$1.66 billion. India’s exports to China during the first quarter of 2003 have also smashed all previous records in bilateral trade by shipping $947 million worth of goods, registering a growth of 119.2 percent compared to the same period last year. Bilateral trade between the two countries during the first quarter of 2002 was $938.10 million, and the total for year 2002 was $4.92 billion. Yet the rush to enter China remains unabated. According to Behl, "Over 50 Indian companies have lined up investments in China, and although SARS has pushed back plans a bit..

For the past half-year, severe acute respiratory syndrome, which began in the coastal province of Guangdong, has swept into inland China and across the globe. While at first China tried to restrict spread of the disease without public warning, things quickly got out of control. When people in Hong Kong, Singapore, and Vietnam began to get infected by the virus, SARS became a bona fide domestic and international crisis. Like the 1997 crisis, the SARS crisis also struck at a seemingly improbable time. In 1997, East Asian countries were basking in the glory of the regional economic miracle and looking forward to another decade of robust economic growth. Likewise, China was also in a great mood before SARS struck.

SARS has already struck China’s foreign trade and tourism, which now contribute significantly to the country’s total gross domestic product [GDP]. The economic growth rate this year is unlikely to reach the 8 percent predicted at the beginning of this year. Indeed, the World Bank has already lowered its forecast for China’s GDP growth rate from 8 percent to 7.5 percent, and it may go even lower if the SARS crisis cannot be contained with the first half-year.

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