The Economic Costs of Infectious
Foreign Affairs, Defence and Trade Group
13 May 2003
Severe Acute Respiratory
Syndrome (SARS) has highlighted the potentially severe threat posed by
infectious diseases to modern economies.
SARS was first detected in
southern China in November 2002. Five months later on 28 April 2003,
after spreading to 28 countries, the World Health Organization (WHO)
announced its containment in Vietnam, and the encouraging news that the
outbreak may have peaked in the high risk areas of Toronto, Hong Kong
Much is yet to be
discovered about the virus in terms of both its lethality and its
communicability. The lethality of the virus is yet to be confirmed due
to the early stage of the epidemic and statistical anomalies in
reporting. Current estimates of the death rate stand at up to 10 per
cent.(1) At this stage, SARS is thought to spread by close
person-to-person contact or direct contact with infectious material,
with most cases affecting carers and health care workers of patients.
Research on the cause of
the virus has focused on the presence of a previously unknown
coronavirus in the majority of SARS patients. Coronaviruses are common
in livestock and poultry, but were previously thought to cause only
common colds in humans.
The Infectious Disease Threat
The threat posed by
infectious disease is not new. Influenza pandemics occurred in 1957 (the
Asian flu), 1968 (the Hong Kong flu) and most notably in 1918 (the
Spanish flu). The Spanish flu, occurring at the close of World War I,
resulted in more than double the number of battlefield deaths. Australia
suffered more 11 500 Spanish influenza related deaths, with 60 per cent
of these in the 20-45 years age group.
However, modern travel,
migration, demographic changes, commerce and even medical procedures
(overuse of antibiotics causing microbial resistance) have greatly
increased the threat of infectious disease outbreaks. It is a widely
accepted belief in the scientific community that it is not a question of
whether, but when another pandemic such as the 1918 Spanish influenza
The economic cost of
infectious disease outbreaks are increasingly becoming a global concern.
Estimates on the cost of the SARS outbreak range from US$10 billion to
US$30 billion. This can be compared to the 1994 locally-contained
outbreak of plague in Surat, India, estimated to cost of US$2 billion
and the 1997 Avian Flu in Hong Kong estimated to have cost hundreds of
millions of dollars in lost poultry production, commerce and tourism.(2)
A study by the US National
Center for Infectious Diseases in 1999 estimated that the economic
impact of an influenza pandemic in the United States would range from
US$71.3 billion to US$166.5 billion.(3) If an influenza
pandemic such as the 1918 Spanish influenza were to occur in Australia
today, it could be expected to cause more than 42 000 deaths per year,
resulting in an enormous economic cost.(4)
While the economic costs of
the SARS outbreak are only just beginning to be calculated, it is
already clear that it will severely affect the growth rates of major
East Asian economies.
Given that East Asia,
excluding Japan, was the fastest growing region in the world economy in
2002, the effect of SARS on regional economies will be felt globally.
Reflecting these uncertain global conditions, the World Trade
Organization issued a revised forecast of 2.5 to 3.0 per cent global
trade growth in 2003, compared to an original forecast of 5.0 per cent.
Similarly, the Asian
Development Bank (ADB) and the World Bank(5) have both cited
SARS in forecasting weaker growth rates for the East Asian region.
The immediate economic
effects of the SARS outbreak have affected services-related businesses,
particularly those in the tourism services sector. Cancelled or
postponed business and leisure tourism has further compounded the effect
of softened domestic demand as consumers avoid restaurants and public
places, seeking to minimise the risk of infection.
This has exacerbated the
effects on the tourism industry already suffering from weakened demand
due to the conflict in Iraq and terrorism scares. The Australian Tourist
Commission has indicated drops in international arrivals both from SARS
affected countries and long-haul travellers, deterred by conflict in
Iraq, terrorism and undesirability of transit in popular stop-over
destinations, Hong Kong and Singapore.
Similarly, the education
services sector will be adversely affected as student numbers reduce in
the short term to avoid infection through air travel and possible
quarantine periods, and in the long term due to weaker economic
conditions in domestic economies.
Softened domestic demand
has also affected downstream sectors, in Australia's case affecting the
demand in key markets for live crustaceans and fish, dairy, meat
products and fresh fruit.
While the longer-term
effects of the SARS outbreak are yet to be determined due to its
evolving nature, several points have become evident:
economy will be affected not only by the immediate outbreak but by
perceptions of the government's response. This could threaten both
foreign direct investment decisions and domestic confidence.
terrorist attacks of September 11 there has been a gradual rise in
the number of businesses resorting to IT, such as
video-conferencing, rather than physical travel. This could be
expected to increase as a result of the SARS outbreak, resulting in
a long-term decline in business travel.
reliant on global supply chains should expect future supplydemand
shocks. As a result of the uncertainty caused by SARS, manufacturers
may increase purchases to maintain flexibility in inventories, thus
resulting in excess inventories as stability returns. This has been
a cause of previous failures in the semi conductor market of East
possibility of a longer duration of the SARS outbreak in China, an
increasingly large number of trade shows will seek alternative lower
risk regional venues such as South Korea.
to medium size enterprise (SME) exporters to engage in the Chinese
market may weaken, slowing a key growth component in the
government's plan to double the number of exporters by 2006.
Comments by Prof R. Smallwood, Commonwealth Chief Medical Officer at the
Homeland Security Conference 2829 April 2003.
National Intelligence Council, 'The Global infectious disease threat and
its implications for the United States', January 2000.
Martin Meltzer, Nancy Cox, and Keiji Fukuda,
'The economic impact of pandemic influenza in the United States;
priorities for intervention', Emerging Infectious Diseases,
SeptOct 1999, v. 5.
Department of Health and Aged Care, Framework for an Australian
influenza pandemic plan, June 1999
cut growth forecasts for the region from 5.6 per cent in December 2002
to 5.3 per cent in April 2003. The World Bank cut growth forecasts from
5.5 per cent to 5.0 per cent.