IMF: Bird Flu Impact to Be Severe but Brief; Virus Continues to Spread

"In principle, the effects in most economies should not be long lasting," Sandy MacKenzie, assistant director of the IMF's Research Department, observed this week in a roundtable discussion on bird flu.

The IMF specialists said a pandemic could result in sharp asset-price declines, a drop in tourism and trade, and mass absenteeism. If the virus mutates and infects humans thereby causing high levels of illness and death, they continued, it is likely there would be a "sharp but only temporary decline in global economic activity."

However, once the pandemic has run its course, economic activity should recover relatively quickly, they assured.

Last year, the World Bank, the IMF's sister organization, said a bird flu pandemic could eradicate $800 billion from world economic growth.

Prefacing his observations by saying that there is a high degree of uncertainty about the virus, David Hoelscher, chief of the IMF Systemic Issues Division of the Monetary and Financial Systems Department, noted that in the face of a particularly severe pandemic, the world could face financial disruptions.

ILLNESS AND DEATHS LEAD TO ABSENTEEISM "Operational risk to the financial system could arise from the impact of absenteeism on a number of key financial institutions such as the payment system providers or even major clearing banks, or there could be an increase in the demand for liquidity from the public. We also know that there could be financial sector disruptions if substantial asset price volatility were to occur, or if there were a spike in risk aversion among our risk players," Hoelscher said.

The specialists concurred that the actual impact of a worldwide infection would differ from country to country and those with more developed economies should rebound faster than developing or underdeveloped countries. However, they added, there is a universal dearth of practical preparations to combat the disease and its effects in all parts of the globe.

"I am extremely reluctant to prognosticate about the impact on global GDP or indeed GDP in any particular country. I think what we can say is that in a country that's basically financially stable which is the vast majority of countries that a really severe pandemic would have a sharp but short-lived impact on GDP," MacKenzie remarked.

"GDP might drop very sharply in one quarter and then rebound the next. A sharp decline would be due to the fact that rates of absenteeism and illness between them would reduce the labor force and labor time very substantially. But because in the case of illnesses, the vast majority of people recover, people would be back on the job soon, absenteeism would come to an end and supply would rebound. Similarly, consumer demand would rebound and, indeed, there would be some sort of compensatory effect in consumer demand. It would pick up as people purchase things that they had postponed like consumer durables and the like," she explained.

As for absenteeism, MacKenzie said once employees overcome the illness and return to work, the temporary decline in output should be reversed. In those cases where there is a permanent decline in the labor force caused by significant deaths, the declines would probably be offset when other household members increase their participation in the labor force, she opined.

"In a well-run economy, there's no reason really to see permanent or significant long-run effect," MacKenzie said.

MORE COUNTRIES CONFIRM H5N1 This week, India, Afghanistan, Myanmar, Denmark and Israel confirmed that recent outbreaks of bird flu in their countries were of the deadly H5N1 strain.

Veterinary workers have destroyed more than 70,000 birds in western India and tested hundreds of people for fever. Tens of thousands of turkeys were ordered destroyed in Israel as a protective measure. About 11,000 turkeys died there in recent days.

Vietnam has intensified a crackdown on poultry smuggled from China to help prevent the spread of the disease. The Agriculture Ministry ordered all border provinces and relevant agencies to keep Chinese poultry from illegally entering the country.

Denmark became the latest of 19 European countries to report cases of the virus as its Ministry for Consumer and Family Affairs said tests showed that a buzzard found southwest of Copenhagen was carrying the disease.

Dutch authorities this week launched a vaccination campaign against bird flu, with chickens on farm of Agriculture Minister the first to be treated.

"This is a good way to keep bird flu out," said Cees Veerman, who has lobbied hard for vaccination across Europe.

The Netherlands initially planned to launch voluntary vaccination of its 1-3 million backyard poultry and about 5 million free-range poultry against the deadly H5N1 avian flu virus last week after receiving EU permission on Feb. 22. Large-scale vaccination is expected to start next week.

Experts have said that the unusually cold winter in Europe has kept the disease from spreading faster that it has. Notably, in Ukraine, confirmed cases of bird flu were restricted to its Crimean peninsula, with its warmer Black Sea climate. No cases were reported in the country's continental regions.

However, with spring beginning next week, along with expected intensified bird migration, that situation could dramatically change across migratory paths from Asia to Europe and farther West across the Atlantic.

Bird flu has ravaged poultry populations and also spread to humans, killing at least 98 people since 2003, according to the World Health Organization. However, there have been no confirmed cases of the disease spreading from one infected person to another.


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