>Economic effects of Swine Flu (WACHOVIA)

Economic Effects of Swine Flu: Mexico and Beyond

The swine flu epidemic has become front page news this week. Mexico is the epicenter of the outbreak and thousands of cases have been reported in that country. However, scores of cases have been confirmed in the United States, and countries as far afield as Israel and New Zealand have hospitalized people with symptoms that resemble swine flu. Not only have the Mexican stock market and currency been hammered over the past few days, but financial markets in most other countries have been adversely affected as well.

The financial and economic costs of the epidemic will ultimately depend on its severity. The outbreak of Severe Acute Respiratory Syndrome (SARS) that swept through Asia in the spring of 2003 is instructive. The SARS epidemic was deadly—nearly 800 people in 7 countries died—but it was not catastrophic. The economic effects of that epidemic were significant but temporary. However, if the current outbreak were to morph into something like the influenza pandemic of 1918, which killed 50 million people worldwide, the economic and financial fallout would obviously be much more devastating.

In this brief note, we attempt to outline how the economies of Mexico and other countries could be affected by the current outbreak of swine flu. In that regard, we draw on the experience of the 2003 SARS epidemic to inform our economic prognosis and we reference some analytical work that has modeled the economic effects of severe pandemics. We acknowledge, however, that it is ultimately impossible to forecast precisely the economic and financial effects of the current outbreak due to the unpredictable nature of the epidemic.

Significant, But Temporary, Economic Effects Likely in Mexico
Because Mexico is the epicenter of the swine flu outbreak let’s begin our discussion with the Mexican economy, which could be adversely affected in a number of ways. First, Mexico’s trade with the rest of the world could be disrupted. Indeed, many nations have already announced import restrictions on Mexican pork products. We do not have data on Mexican pork exports, but they surely represent a small proportion of the $7.9 billion worth of agricultural goods that Mexico exported last year. Moreover, the direct effects of an import embargo by foreign countries on Mexican pork products would be rather miniscule in terms of the $1 trillion Mexican economy.

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