Swine flu keeps investors, businesses on edge

[April 28, 2009]  HONG KONG (AP) -- The threat of a swine flu pandemic kept global businesses and investors on edge Tuesday, disrupting travel plans and sending stock markets into a tailspin as fears of more economic misery mounted.

Days after the deadly virus outbreak in Mexico, tour groups around the Asia-Pacific abandoned more holiday jaunts to the country amid a series of government warnings. Airports from Indonesia to Australia tightened their screening of travelers.

The disease, while still largely corralled in North America, has spread rapidly in recent days with the World Health Organization raising its global alert level and moving closer to declaring a flu pandemic as infections cropped up in Europe. Asia's first cases were confirmed in New Zealand; another case emerged in Israel. The virus is suspected in about 150 deaths, all in Mexico.

With the world economy already seen shrinking 1.3 percent this year by the International Monetary Fund, swine flu could add more stress by further eroding trade, consumer spending and investment -- snuffing out what many say are the glimmers of a recovery.

"This certainly could exacerbate the recession," said Sherman Chan, an economist with Moody's in Australia. "The next couple weeks will be crucial. If this persist it could become a more serious concern and really cripple the economy."

For the U.S. economy, any turnaround could be delayed well into 2010 as gross domestic product contracts more than expected. In a worst-case scenario, the U.S. economy would shrink by an extra 0.3 percent this year, on top of a predicted 3.5 percent decline, says Brian Bethune, economist at IHS Global Insight. That amounts to a roughly $50 billion loss of economic activity, he said. The IMF already has projected the U.S. economy will shrink 2.8 percent this year.

White House spokesman Robert Gibbs said it's a "little too early to determine the economic impact" but the Treasury Department and agencies are "monitoring the situation and looking into it."

Still, most experts don't think a swine-flu outbreak by itself would eliminate many U.S. jobs or severely worsen the economy.

Simon Johnson, former IMF chief economist and a professor at the Massachusetts Institute of Technology's Sloan School of Management, envisions only a "small hit" to economic activity in the United States -- just a few tenths of 1 percentage point.

So far, the disease's impact has been felt largely in markets, not the real economy.

On Tuesday, investors continued to buy up drug makers and medical firms. Airlines, hoteliers and other travel-linked stocks took another hit. Markets were down sharply overall, with Japan's benchmark off 2.7 percent and South Korea's shedding 3 percent. London's FTSE and Germany's DAX both slumped 2 percent or more.

For now, many governments weren't taking any chances.

The European Union advised against nonessential travel to the United States and Mexico. Indonesia, the country worst effected by bird flu with 119 human deaths since 2003, advised its citizens against any travel to Mexico, as did the Philippines, Japan and many other countries.

The unease extended to companies and tour groups from China to South Korea, where Samsung Electronics Co. told its employees not to travel to Mexico on business.

In Hong Kong, among the cities hardest hit by the SARS epidemic six years ago, one travel agency scrapped trips to Los Angeles because of the city's proximity to Mexico. A second said it was canceling an 18-day excursion to Mexico, Cuba and Venezuela as a result of swine fu.

"This outbreak looks very serious," said Roger Hong, deputy general manager of Hong Kong-based Goldjoy Travel. "The outbreak has just begun. We don't know how far it has spread."

The flu could also hurt the $5 billion export market for U.S. pork. China, Russia and Ukraine banned imports of pork and pork products from Mexico and three U.S. states that have reported cases of swine flu. Other governments were increasing screening of pork imports.

Even though it's safe to eat pork (swine flu viruses don't spread through food), analysts still expect an impact on the industry.

"Though there is no evidence that swine flu can be obtained by eating pork, the fear generated by a disease named after hogs cannot be good for pork consumption," said JPMorgan analyst Ken Goldman.

Despite the growing alarm, the world is now better equipped to deal with cross-border health crises after being tested by SARS and bird flu.

Vaccines can be rolled out fairly quickly. Many big companies now have contingency plans to keep essential operations going if employees can't make it to work. And compared with previous crises, this time around has witnessed relatively quick responses and transparency from governments -- two factors critical to keeping up public confidence, analysts say.

"On the one hand, it's a terrible and traumatic thing -- a flu pandemic," Johnson said. "On the other hand, it almost certainly will not have a significant effect."

[Associated Press; By JEREMIAH MARQUEZ]

Also contributing to this report: Associated Press Writers Jeannine Aversa in Washington, Oliver Teves in Manila, Dikky Sinn in Hong Kong, Kelly Olsen and Ji Youn Oh in Seoul, Joe McDonald in Beijing, and Anthony Deutsch in Jakarta.

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